UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2011
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission File Number: 001-33958
RXi Pharmaceuticals Corporation
(Exact name of registrant as specified in its charter)
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Delaware
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20-8099512
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(State of incorporation)
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(I.R.S. Employer Identification No.)
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60 Prescott Street, Worcester, MA 01605
(Address of principal executive office) (Zip code)
Registrants telephone number:
(508) 767-3861
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on it
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter time that the registrant was required to submit and post such files).
Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
þ
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(Do not check if a smaller reporting company)
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Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
þ
As of
August 11, 2011, RXi Pharmaceuticals Corporation had 41,986,800 shares of common stock, $0.0001 par
value, outstanding.
RXi PHARMACEUTICALS CORPORATION
FORM 10-Q QUARTER ENDED June 30, 2011
INDEX
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Page
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Part No.
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Item No.
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Description
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No.
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FINANCIAL INFORMATION
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1
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Financial Statements
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2
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Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010 (unaudited)
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2
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Condensed Consolidated Statements of Expenses for the three months ended June 30, 2011 and 2010, the
six months ended June 30, 2011 and 2010, and the cumulative amounts for the period
January 1, 2003 (date of inception) to June 30, 2011 (unaudited)
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3
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Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 and
the cumulative amounts for the period January 1, 2003 (date of inception) to June 30,
2011(unaudited)
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4
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Notes to Condensed Consolidated Financial Statements (unaudited)
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7
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2
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Managements Discussion and Analysis of Financial Condition and Results of Operations
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17
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4
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Controls and Procedures
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19
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OTHER INFORMATION
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1
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Legal Proceedings
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21
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1A
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Risk Factors
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21
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2
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Unregistered Sales of Equity Securities and Use of Proceeds
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21
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3
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Defaults Upon Senior Securities
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21
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4
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(Removed and
Reserved)
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21
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5
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Other Information
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21
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6
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Exhibits
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21
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Index to Exhibits
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21
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Signatures
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22
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EX-4.2
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EX-10.1
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EX-10.2
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EX-10.3
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EX-10.4
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EX-10.5
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EX-10.6
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EX-10.8
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EX-10.9
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EX-10.10
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EX-10.11
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EX-10.12
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EX-31.1
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EX-31.2
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EX-32.1
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EX-101 INSTANCE DOCUMENT
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EX-101 SCHEMA DOCUMENT
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EX-101 CALCULATION LINKBASE DOCUMENT
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EX-101 LABELS LINKBASE DOCUMENT
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EX-101 PRESENTATION LINKBASE DOCUMENT
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PART I
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ITEM 1.
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FINANCIAL STATEMENTS
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RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
(Unaudited)
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June 30,
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December 31,
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2011
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2010
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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17,933
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$
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6,891
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Prepaid expenses and other current assets
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259
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150
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Total current assets
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18,192
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7,041
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Equipment and furnishings, net
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436
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419
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In-process research & development (Note 2)
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12,864
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Goodwill
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845
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Deposits
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16
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16
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Total assets
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$
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32,353
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$
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7,476
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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1,065
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$
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724
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Accrued expenses and other current liabilities
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1,785
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1,113
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Deferred revenue
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578
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Current maturities of capital lease obligations
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59
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51
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Fair value of stock options modified (Note 7)
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682
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Fair value of warrants potentially settleable in cash (Note 7)
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11,882
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3,138
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Current contingent purchase price consideration
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768
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Total current liabilities
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16,819
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5,026
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Capital lease obligations, net of current maturities
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10
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20
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Contingent purchase price consideration, net of current portion
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5,664
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Total liabilities
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22,493
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5,046
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Commitments and contingencies (Note 6)
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Stockholders equity:
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Preferred stock, $0.0001 par value; 5,000,000 shares
authorized; no shares issued and outstanding
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Common stock, $0.0001 par value; 50,000,000 shares authorized;
42,511,800 shares issued and 41,836,800 shares outstanding and
19,047,759 shares issued and 18,372,759 outstanding at June
30, 2011 and December 31, 2010, respectively
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4
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2
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Additional paid-in capital
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74,675
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62,020
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Deficit accumulated during the developmental stage
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(60,970
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)
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(55,743
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)
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Less treasury shares at cost, 675,000 shares
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(3,849
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)
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(3,849
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Total stockholders equity
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9,860
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2,430
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Total liabilities and stockholders equity
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$
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32,353
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$
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7,476
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The accompanying notes are an integral part of these financial statements.
2
RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF EXPENSES
(Amounts in thousands, except share and per share data)
(Unaudited)
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Period from
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January 1,
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For the Three
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For the Three
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For the Six
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For the Six
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2003 (Date of
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Months Ended
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Months Ended
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Months Ended
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Months Ended
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Inception) to
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June 30,
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June 30,
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June 30,
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June 30,
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June 30,
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2011
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2010
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2011
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2010
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2011
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Expenses:
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Research and development
expense
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$
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2,506
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$
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1,484
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$
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4,451
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$
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2,983
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$
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31,130
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Research and development
employee stock based
compensation expense
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212
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267
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458
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540
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2,865
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Research and development
non-employee stock based
compensation expense
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(45
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)
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513
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(76
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)
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667
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5,987
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Fair value
of common stock issued in
exchange for licensing rights
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3,954
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Total research and
development expenses
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2,673
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2,264
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4,833
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4,190
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43,936
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General and administrative
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1,610
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1,654
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3,531
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3,102
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24,641
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General and administrative
employee stock based
compensation
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328
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646
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1,427
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1,418
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8,812
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Common stock warrants issued
for general and administrative
expenses
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11
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190
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87
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500
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2,381
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Fair value of common stock
issued in exchange for general
and administrative expenses
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23
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304
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Total general and
administrative expenses
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1,949
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2,490
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5,068
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5,020
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36,138
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Operating loss
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(4,622
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)
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(4,754
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)
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(9,901
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)
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(9,210
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)
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(80,074
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)
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Interest income (expense)
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(3
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)
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3
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(4
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)
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2
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624
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Other income (Note 7)
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3,243
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2,610
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4,678
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3,181
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8,443
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Net loss
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$
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(1,382
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)
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$
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(2,141
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)
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$
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(5,227
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)
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$
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(6,027
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)
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$
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(71,007
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)
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Net loss per common share:
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Basic and diluted loss per
share
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$
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(0.04
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)
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$
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(0.12
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)
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$
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(0.18
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)
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$
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(0.35
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)
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N/A
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Weighted average common shares
outstanding:
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Basic and diluted
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38,568,501
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18,371,808
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29,492,756
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17,384,606
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N/A
|
|
The accompanying notes are an integral part of these financial statements.
3
RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
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|
|
|
|
|
|
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|
|
|
|
|
|
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Period from
|
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|
|
|
|
|
|
|
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|
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January 1,
|
|
|
|
|
|
|
|
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2003
|
|
|
|
For the Six
|
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For the Six
|
|
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(Date of
|
|
|
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Months Ended
|
|
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Months Ended
|
|
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Inception)
|
|
|
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June 30,
|
|
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June 30,
|
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Through
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2011
|
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2010
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June 30, 2011
|
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Cash flows from operating activities:
|
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|
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Net loss
|
|
$
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(5,227
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)
|
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$
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(6,027
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)
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$
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(71,011
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)
|
Adjustments to reconcile net loss to net cash used in operating activities:
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|
|
|
|
|
|
|
|
|
|
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Depreciation and amortization expense
|
|
|
84
|
|
|
|
85
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|
|
|
585
|
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Loss on disposal of equipment
|
|
|
7
|
|
|
|
|
|
|
|
19
|
|
Non-cash rent expense
|
|
|
|
|
|
|
|
|
|
|
29
|
|
Accretion and receipt of bond discount
|
|
|
|
|
|
|
|
|
|
|
35
|
|
Non-cash share-based compensation
|
|
|
1,810
|
|
|
|
2,625
|
|
|
|
17,667
|
|
Loss on exchange of equity instruments
|
|
|
900
|
|
|
|
|
|
|
|
900
|
|
Fair value of shares mandatorily redeemable for cash upon exercise of
warrants
|
|
|
|
|
|
|
|
|
|
|
(785
|
)
|
Fair value of common stock warrants issued in exchange for services
|
|
|
87
|
|
|
|
500
|
|
|
|
2,381
|
|
Fair value of common stock issued in exchange for services
|
|
|
23
|
|
|
|
|
|
|
|
304
|
|
Change in fair value of common stock warrants issued in connection
with various equity financings
|
|
|
(5,393
|
)
|
|
|
(3,181
|
)
|
|
|
(7,584
|
)
|
Fair value of common stock issued in exchange for licensing rights
|
|
|
|
|
|
|
|
|
|
|
3,954
|
|
Change in fair value of contingent purchase consideration
|
|
|
(28
|
)
|
|
|
|
|
|
|
(28
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(94
|
)
|
|
|
(190
|
)
|
|
|
(244
|
)
|
Accounts payable
|
|
|
(590
|
)
|
|
|
(296
|
)
|
|
|
134
|
|
Due to former parent
|
|
|
|
|
|
|
|
|
|
|
(207
|
)
|
Deferred revenue
|
|
|
578
|
|
|
|
|
|
|
|
578
|
|
Accrued expenses and other current liabilities
|
|
|
757
|
|
|
|
333
|
|
|
|
2,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(7,086
|
)
|
|
|
(6,151
|
)
|
|
|
(51,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received in acquisition
|
|
|
168
|
|
|
|
|
|
|
|
168
|
|
Purchase of short-term investments
|
|
|
|
|
|
|
(5,996
|
)
|
|
|
(37,532
|
)
|
Maturities of short-term investments
|
|
|
|
|
|
|
|
|
|
|
37,497
|
|
Cash paid for purchase of equipment and furnishings
|
|
|
(53
|
)
|
|
|
(54
|
)
|
|
|
(739
|
)
|
Disposal of equipment and furnishings
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Cash refunded (paid) for lease deposit
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
4
CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
For the Six
|
|
|
|
|
|
|
2003
|
|
|
|
Months
|
|
|
For the Six
|
|
|
(Date of
|
|
|
|
Ended
|
|
|
Months Ended
|
|
|
Inception)
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Through
|
|
|
|
2011
|
|
|
2010
|
|
|
June 30, 2011
|
|
Net cash provided by (used in) investing activities
|
|
|
115
|
|
|
|
(6,050
|
)
|
|
|
(652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common stock
|
|
|
18,060
|
|
|
|
15,235
|
|
|
|
64,427
|
|
Cash paid for repurchase of common stock
|
|
|
|
|
|
|
(3,849
|
)
|
|
|
(3,849
|
)
|
Net proceeds from exercise of common stock options
|
|
|
|
|
|
|
255
|
|
|
|
610
|
|
Repayments of capital lease obligations
|
|
|
(47
|
)
|
|
|
(31
|
)
|
|
|
(173
|
)
|
Cash advances from former parent company, net
|
|
|
|
|
|
|
|
|
|
|
8,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
18,013
|
|
|
|
11,610
|
|
|
|
69,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
11,042
|
|
|
|
(591
|
)
|
|
|
17,933
|
|
Cash and cash equivalents at the beginning of period
|
|
|
6,891
|
|
|
|
5,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
17,933
|
|
|
$
|
5,093
|
|
|
$
|
17,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received during the period for interest
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
5
CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period From
|
|
|
|
For the
|
|
|
For the
|
|
|
January 1,
|
|
|
|
Six
|
|
|
Six
|
|
|
2003
|
|
|
|
Months
|
|
|
Months
|
|
|
(Date of
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Inception)
|
|
|
|
June
|
|
|
June
|
|
|
through
|
|
|
|
30,
|
|
|
30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of corporate formation expenses in exchange for common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of warrants issued in connection with common stock recorded
as a cost of equity
|
|
$
|
13,232
|
|
|
$
|
2,466
|
|
|
$
|
18,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of shares mandatorily redeemable for cash upon the exercise
of warrants
|
|
$
|
|
|
|
$
|
785
|
|
|
$
|
785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of stock options modified
|
|
$
|
674
|
|
|
$
|
|
|
|
$
|
674
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of management expenses
|
|
$
|
|
|
|
$
|
|
|
|
$
|
551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and furnishings exchanged for common stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and furnishings acquired through capital lease
|
|
$
|
44
|
|
|
$
|
28
|
|
|
$
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of restricted stock units and common stock issued in lieu of cash
bonuses
|
|
$
|
|
|
|
$
|
207
|
|
|
$
|
207
|
|
|
|
|
|
|
|
|
|
|
|
Value of restricted stock units and common stock issued in lieu of
bonuses included in accrued expenses
|
|
$
|
427
|
|
|
$
|
47
|
|
|
$
|
474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash lease deposit
|
|
$
|
|
|
|
$
|
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
Apthera
Acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of shares issued to acquire Apthera
|
|
$
|
6,367
|
|
|
$
|
|
|
|
$
|
6,367
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of contingent purchase price consideration in connection with
Apthera acquisition
|
|
$
|
6,460
|
|
|
$
|
|
|
|
$
|
6,460
|
|
|
|
|
|
|
|
|
|
|
|
Net assets
acquired excluding cash of $168
|
|
$
|
12,827
|
|
|
$
|
|
|
|
$
|
12,827
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
6
RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Description of Business and Basis of Presentation
RXi Pharmaceuticals Corporation (NASDAQ: RXII) is a biotechnology
company focused on discovering, developing and commercializing innovative therapies addressing
major unmet medical needs using targeted biotherapeutics. RXi is pursuing the development of novel
cancer therapeutics using peptide-based immunotherapy products, including our main product
candidate, NeuVax (E75), for the treatment of various cancers.
In this document, we, our, ours,
us, RXi, and the Company refer to RXi Pharmaceuticals Corporation and Apthera, Inc., its wholly owned subsidiary.
The Company has not generated any revenues since inception nor are any revenues expected for the
foreseeable future. The Company expects to incur significant operating losses for the foreseeable
future while the Company advances its future product candidates from discovery through
pre-clinical studies and clinical trials and seek regulatory approval and potential
commercialization, even if the Company is collaborating with pharmaceutical and larger
biotechnology companies. In addition to these increasing research and development expenses, the
Company expects general and administrative costs to increase as the Company recruits additional
management and administrative personnel. The Company will need to generate significant revenues to
achieve profitability and may never do so.
The Company believes that its existing cash and cash equivalents should be sufficient to fund its
operations through at least the second quarter of 2012. In the future, the Company will be
dependent on obtaining funding from third parties such as proceeds from the sale of equity, funded
research and development payments and payments under partnership and collaborative agreements, in
order to maintain its operations and meet its obligations to licensors. There is no guarantee that
debt, additional equity or other funding will be available to the Company on acceptable terms, or
at all. If the Company fails to obtain additional funding when needed, it would be forced to scale
back, or terminate, the Companys operations or to seek to merge with or to be acquired by another
company.
The accompanying condensed financial statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission (SEC) and should be read in conjunction
with the Companys financial statements and the notes thereto for the year ended December 31, 2010
included in the Companys Annual Report on Form 10-K filed with the SEC on April 15, 2011. Certain
information and footnote disclosures normally included in financial statements prepared in
accordance with United States generally accepted accounting principles (U.S. GAAP) have been
condensed or omitted pursuant to such rules and regulations. The information presented as of and
for the six month periods ended June 30, 2011 and 2010 and three
months ended June 30, 2011 and 2010, as well as the cumulative financial
information for the period from January 1, 2003 (date of inception) through June 30, 2011 is
unaudited and has been prepared on the same basis as the audited financial statements and includes
all adjustments, consisting of only normal recurring adjustments, necessary for the fair
presentation of this information in all material respects. The results of any interim period are
not necessarily indicative of the results of operations to be expected for a full fiscal year.
There have been no material changes to the Companys significant accounting policies as disclosed
in the Companys Annual Report on Form 10-K for the year ended December 31, 2010. The Companys
operating results will fluctuate for the foreseeable future. Therefore, period-to-period
comparisons should not be relied upon as predictive of the results in future periods.
Uses of estimates in preparation of financial statements
The preparation of financial statements in accordance with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ
from these estimates.
Derivative Financial Instruments
During the normal course of business, from time to time, the Company issues warrants and
options to vendors as consideration to perform services. It may also issue warrants as part of a
debt or equity financing. The Company does not enter into any derivative contracts for speculative
purposes. The Company recognizes all derivatives as assets or liabilities measured at fair value
with changes in fair value of derivatives reflected as current period income or loss unless the derivatives qualify for hedge
accounting and are accounted for as such. In accordance with Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) Topic 815-40,
7
RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Derivatives and Hedging Contracts in Entitys Own Stock
, the value of these warrants is
required to be recorded as a liability, as the holders have an option to put the warrants back to
the Company in certain events, as defined.
Obligations to Repurchase Shares of the Companys Equity Securities
In
accordance with FASB ASC Topic 480-10,
Distinguishing Liabilities from Equity
, the
Company recognizes all obligations to repurchase shares of its equity securities that require or
may require the Company to settle the obligation by transferring assets, as liabilities or assets
in some circumstances measured at fair value with changes in fair value reflected as current period
income or loss and are accounted for as such.
Deferred
Revenue
Deferred revenue consists of advance payments received under government grants. The Company will recognize revenue when the obligations under the grants are fullfilled.
2. Apthera Acquisition
On April 13, 2011, the Company completed its acquisition of Apthera, Inc., a Delaware
corporation (Apthera) under an Agreement and Plan of Merger entered into on March 31, 2011.
Subject to the terms and conditions of the merger agreement, the Companys wholly owned subsidiary
formed for this purpose was merged with and into Apthera, with Apthera surviving as a wholly-owned
subsidiary of the Company. Under the merger agreement, the Company issued to Aptheras stockholders
approximately 5.0 million shares of common stock of the Company and agreed to make future contingent payments of up to $32 million based on the achievement of certain development and commercial milestones relating
to the Companys NeuVax product candidate. The contingent consideration is payable, at the election
of the Company, in either cash or additional shares of common stock, provided that the Company may
not issue any shares in satisfaction of any contingent consideration unless it has first obtained
approval of its stockholders in accordance with Rule 5635(a) of the NASDAQ Marketplace Rules.
In connection with the merger, the Company deposited with a third-party escrow agent
certificates representing 10% of the Aggregate Stock Consideration, which shares will be available
to compensate the Company and related parties for certain indemnifiable losses as described in the
merger agreement.
The Companys acquisition of Apthera was in concert with the decision by the Companys Board
of Directors to diversify its development programs and to become a late stage clinical development
company. The Company believes that acquiring Apthera will enhance its
long-term prospects by giving
the Company access to a late stage product candidate, NeuVax, which
is expected to enter a Phase 3 clinical
trial under an FDA-approved Special Protocol Assessment (SPA) for the adjuvant treatment of
early stage HER2 breast cancer in the first half of 2012. To do so, the Company must satisfy
certain FDA information requirements to be released from a partial clinical hold to commence the
Phase 3 trial. Based on Aptheras prior clinical trials, the Company also believes that NeuVax has
the potential to treat other cancers, including prostate, bladder and
ovarian cancers. With the Companys increasing focus on its cancer product candidates, the Company is
assessing its strategic options with respect to its RNAi therapeutics
technology platform.
The purchase price consideration and allocation of purchase price was as follows:
|
|
|
|
|
|
|
(in 000s)
|
|
Calculation of allocable purchase price(i):
|
|
|
|
|
Fair value of shares issued at closing including escrowed shares expected to be released
|
|
$
|
6,367
|
(ii)
|
Estimated value of earn-out
|
|
|
6,460
|
|
|
|
|
|
Total allocable purchase price
|
|
$
|
12,827
|
|
|
|
|
|
|
|
|
|
|
Estimated allocation of purchase price(i):
|
|
|
|
|
Cash
|
|
$
|
168
|
|
Prepaid expenses and other current assets
|
|
|
14
|
|
Equipment and furnishings
|
|
|
11
|
|
Goodwill
|
|
|
845
|
|
In-process research and development
|
|
|
12,864
|
|
Accounts payable
|
|
|
(931
|
)
|
Accrued expenses and other current liabilities
|
|
|
(143
|
)
|
Notes payable
|
|
|
(1
|
)
|
|
|
|
|
|
|
$
|
12,827
|
|
|
|
|
|
|
|
|
(i)
|
|
The purchase price allocation has not been finalized and is subject to change upon completion of the valuation of intangible assets.
|
|
(ii)
|
|
The value of the Companys common stock was based upon a per share value of $1.28, the closing price of the Companys common
|
8
stock as of the close of business on April 13, 2011.
The following presents the pro forma net loss and net loss per common share for the three and
six months ended June 30, 2011 and 2010 of the Companys acquisition of Apthera assuming the
acquisition occurred as of January 1, 2010:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
Net loss
|
|
$
|
(1,824
|
)
|
|
$
|
(2,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
39,224,425
|
|
|
|
23,345,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
Net loss
|
|
$
|
(6,221
|
)
|
|
$
|
(7,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share
|
|
$
|
(0.19
|
)
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
32,295,834
|
|
|
|
22,358,696
|
|
|
|
|
|
|
|
|
3. Fair Value Measurements
Effective January 1, 2008, the Company implemented FASB ASC Topic 820,
Fair Value
Measurements and Disclosures
(ASC 820) for the Companys financial assets and liabilities that
are re-measured and reported at fair value at each reporting period, and are re-measured
and reported at fair value at least annually using a fair value hierarchy that is broken down into
three levels. Level inputs are as defined as follows:
Level 1 quoted prices in active markets for identical assets or liabilities.
Level 2 other significant observable inputs for the assets or liabilities through corroboration
with market data at the measurement date.
Level 3 significant unobservable inputs that reflect managements best estimate of what market
participants would use to price the assets or liabilities at the measurement date.
The Company categorized its cash equivalents as a Level 1 hierarchy. The valuation for Level 1
was determined based on a market approach using quoted prices in active markets for identical
assets. Valuations of these assets do not require a significant degree of judgment. The Company
categorized its warrants potentially settled in cash and its common stock potentially redeemable in
cash as a Level 2 hierarchy. The warrants are measured at market value on a recurring basis and are
being marked to market each quarter-end until they are completely settled. The warrants are valued
using the Black-Scholes method, using assumptions consistent with our application of ASC 718.
On March 30, 2011, the Company entered into a severance agreement with its former President
and Chief Executive Officer whereby, among other things, it agreed to issue shares to the former
officer such that the number of shares issued times the market price of the shares on the day
immediately following the separation date equal a value of $300,000. The agreement further provides
that the Company will, at its option, provide a cash payment or additional shares to the former
officer if necessary such that the value of 1/3 of the shares issued and
2/3 of the shares issued, respectively, at the separation date equal a guaranteed value of $100,000
as of the
90
th
day
following the seperation date and $200,000 as of the
180
th
day following the seperation date based on the
closing price of the Companys common stock for the five days
preceding each measurement date. At June 30, 2011, a liability of $200,000
was included in accrued expenses representing the guaranteed value under the severance agreement for the
remaining 2/3 shares issued.
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
in
|
|
|
Other
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
June 30,
|
|
|
Active Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
2011
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
17,933
|
|
|
$
|
17,933
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
17,933
|
|
|
$
|
17,933
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options potentially settleable in cash
|
|
$
|
682
|
|
|
$
|
|
|
|
$
|
682
|
|
|
$
|
|
|
Warrants potentially settleable in cash
|
|
|
11,882
|
|
|
|
|
|
|
|
11,882
|
|
|
|
|
|
Common stock
potentially settleable in cash (included in accrued expenses)
|
|
|
200
|
|
|
|
|
|
|
|
200
|
|
|
|
|
|
Contingent purchase price consideration
|
|
|
6,432
|
|
|
|
|
|
|
|
|
|
|
|
6,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
19,196
|
|
|
$
|
|
|
|
$
|
12,764
|
|
|
$
|
6,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
in
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
6,891
|
|
|
$
|
6,891
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,891
|
|
|
$
|
6,891
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants potentially settleable in cash
|
|
$
|
3,138
|
|
|
$
|
|
|
|
$
|
3,138
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
3,138
|
|
|
$
|
|
|
|
$
|
3,138
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for cash equivalents, accounts payable, and
capital leases approximate their fair values due to their short-term nature and market rates of
interest.
10
RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Stock Based Compensation
The Company follows the provisions of the FASB ASC Topic 718,
Compensation Stock
Compensation
(ASC 718), which requires the measurement and recognition of compensation expense
for all share-based payment awards made to employees, non-employee directors, and consultants,
including employee stock options. Stock compensation expense based on the grant date fair value
estimated in accordance with the provisions of ASC 718 is recognized as an expense over the
requisite service period.
For stock options granted as consideration for services rendered by non-employees, the Company
recognizes compensation expense in accordance with the requirements of FASB ASC Topic 505-50,
Equity Based Payments to Non- Employees.
Non-employee option grants that do not vest immediately upon grant are recorded as an expense
over the vesting period of the underlying stock options. At the end of each financial reporting
period prior to vesting, the value of these options, as calculated using the Black-Scholes
option-pricing model, will be re-measured using the fair value of the Companys common stock and
the non-cash compensation recognized during the period will be adjusted accordingly. Since the fair
market value of options granted to non-employees is subject to change in the future, the amount of
the future compensation expense will include fair value re-measurements until the stock options are
fully vested.
The Company is currently using the Black-Scholes option-pricing model to determine the fair
value of all its option grants. For option grants issued in the three
and six months periods ended
June 30, 2011 and 2010, the following assumptions were used:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Weighted average risk-free interest rate
|
|
|
2.53
|
%
|
|
|
3.21
|
%
|
|
|
2.35
|
%
|
|
|
3.06
|
%
|
Weighted average expected volatility
|
|
|
99.18
|
%
|
|
|
124.03
|
%
|
|
|
111.78
|
%
|
|
|
120.84
|
%
|
Weighted average expected lives (years)
|
|
|
6.00
|
|
|
|
9.29
|
|
|
|
5.78
|
|
|
|
7.26
|
|
Weighted average expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The weighted average fair value of options granted during the six month period ended June 30, 2011
and 2010 was $1.18 and $4.34 per share, respectively.
The weighted average fair value of options granted during the three month period ended June 30,
2011 and 2010 was $1.01 and $4.87 per share, respectively.
RXis expected common stock price volatility assumption is based upon the volatility of a
basket of comparable companies. The expected life assumptions for employee grants were based upon
the simplified method provided for under ASC 718-10. The expected life assumptions for
non-employees were based upon the contractual term of the option. The dividend yield assumption of
zero is based upon the fact that RXi has never paid cash dividends and presently has no intention
of paying cash dividends. The risk-free interest rate used for each grant was also based upon
prevailing short-term interest rates. RXi has estimated an annualized forfeiture rate of 15.0% for
options granted to its employees, 8.0% for options granted to senior management and no forfeiture
rate for the directors. RXi will record additional expense if the actual forfeitures are lower than
estimated and will record a recovery of prior expense if the actual forfeiture rates are higher
than estimated.
11
The following table summarizes stock option activity from January 1, 2011 through
June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Total Number
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
|
of Shares
|
|
|
Price
|
|
|
Value
|
|
|
|
|
Outstanding at January 1, 2011
|
|
|
4,333,136
|
|
|
$
|
5.10
|
|
|
$
|
137,000
|
|
Granted
|
|
|
2,002,500
|
|
|
|
1.42
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
730,947
|
|
|
|
3.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2011
|
|
|
5,604,689
|
|
|
$
|
3.75
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2011
|
|
|
3,949,672
|
|
|
$
|
4.43
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic values of outstanding and exercisable options at June 30,
2011 were calculated based on the closing price of the Companys common stock on June 30, 2011 of
$0.98 per share less the exercise price of those shares. The aggregate intrinsic values of options
exercised was calculated based on the difference, if any, between the exercise price of the underlying
awards and the quoted price of the Companys common stock on the date of exercise.
5. Net Loss Per Share
The Company accounts for and discloses net loss per common share in accordance with FASB ASC
Topic 260
Earnings per Share.
Basic net loss per common share is computed by dividing net loss
attributable to common stockholders by the weighted average number of common shares
outstanding. Diluted net loss per common share is computed by dividing net loss attributable to
common stockholders by the weighted average number of common shares that would have been
outstanding during the period assuming the issuance of common shares for all potential dilutive
common shares outstanding. Potential common shares consist of shares issuable upon the exercise of
stock options and warrants. Because the inclusion of potential common shares would be anti-dilutive
for all periods presented, diluted net loss per common share is the same as basic net loss per
common share.
The following table sets forth the potential common shares excluded from the calculation of
net loss per common share because their inclusion would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
Options to purchase common stock
|
|
|
5,604,689
|
|
|
|
4,326,963
|
|
Warrants to purchase common stock
|
|
|
20,200,642
|
|
|
|
2,100,642
|
|
|
|
|
|
|
|
|
Total
|
|
|
25,805,331
|
|
|
|
6,427,605
|
|
|
|
|
|
|
|
|
6. License Agreements
As part of its business, the Company enters into licensing agreements, which often require
milestone and royalty payments based on the progress of the asset through development stages.
Milestone payments may be required, for example, upon approval of the product for marketing by a
regulatory agency. In certain agreements, RXi is required to make royalty payments based upon a
percentage of product sales.
An individual milestone payment required under the licensing arrangements may be material, and
in the event that multiple milestones are reached in the same period, the aggregate payments
associated with the milestones could adversely affect the results of operations or affect the
comparability of our period-to-period results. In addition, these licensing arrangements often give
the Company the discretion to unilaterally terminate development of the product, which would allow
the Company to avoid making the contingent payments; however, the Company is unlikely to cease
development if the compound successfully achieves clinical testing
objectives. During the quarter, the Company cancelled several of its
licenses with the University of Massachusetts Medical School
(UMMS). Additionally, in conjunction with the acquisition of Apthera,
the Company assumed the rights and obligations of a certain license agreement, as amended,
from The University of Texas M. D. Anderson Cancer Center (MDACC) and The Henry M. Jackson
Foundation for the Advancement of Military Medicine, Inc. (HJF) which grants exclusive
worldwide rights to the use of one patent and one patent application involving the use of
the E75 peptide. Under the terms of this license, we are required to make future annual
maintenance fee payments, as well as clinical milestone payments and royalty payments based
on sales of therapeutic products developed from the licensed technologies. As part of the
expected payments under the terms of the license, the Company must pay an annual maintenance
fee of $175,000 in 2011 and $200,000 in 2012. In addition, upon commencing the Phase 3 trial,
we will pay a milestone payment of $200,000.
7. Equity
2011
Financings
On
April 20, 2011, the Company completed an underwritten public offering of 11,950,000 units at a price to
the public of $1.00 per unit for gross proceeds of approximately $12 million (the April 2011
Offering). Each unit consisted of one share of common stock and a warrant to purchase one share of
common stock at an exercise price of $1.00 per share. The shares of
common stock and warrants were
immediately separable and no separate units were issued. The warrants are exercisable beginning one
year and one day from the date of issuance, but only if the Companys stockholders approve an
increase in the number of authorized shares of common stock of the Company, and expire on the sixth
12
anniversary of the date of issuance. Net proceeds, after underwriting discounts and commissions and
other offering expenses, were approximately $10.9 million. In connection with the April financing,
the Company agreed to hold a stockholders meeting no later than July 31, 2011 in order to seek
stockholder approval for an amendment to the Companys Amended and Restated Certificate of
Incorporation to increase the authorized number of shares or our common stock. The Board of Directors of the Company subsequently adopted an amendment to increase the
authorized shares of common stock to 125,000,000, which was presented
to and approved by the
stockholders of the Company at the 2011 Annual Meeting of Stockholders held on July 15, 2011.
On March 4, 2011, the Company closed an underwritten public offering of 6,000,000 units at a
price to the public of $1.35 per unit for gross proceeds of
$8.1 million (theMarch 2011 Offering). The offering provided approximately $7.3 million to the Company after deducting the
underwriting discounts and commissions and offering expenses. Each unit consists of (i) one share
of common stock, (ii) a thirteen-month warrant to purchase 0.50 of a share of common stock at an
exercise price of $1.70 per share (subject to anti-dilution adjustment) and (iii) a five-year
warrant to purchase 0.50 of a share of common stock at an exercise price of $1.87 per share
(subject to anti-dilution adjustment). On April 15, 2011, the holders of outstanding warrants
issued in the March 2011 Offering to purchase an aggregate of 3,450,000 shares of common stock
agreed to exchange such warrants for warrants exercisable for the same number of shares as those
being exchanged, but otherwise on the same terms of the warrants sold in the Companys April 2011
financing. Prior to the exchange, the Company recorded a decrease in fair value of $1,000,000
related to the exchanged warrants. Upon the exchange, the Company
recorded a loss of $900,000, which
represented the difference between the adjusted fair value of the March 2011 warrants as compared
to the fair value of the April 2011 warrants received in the exchange. As a result of a subsequent
offering that was completed on April 15, 2011, the exercise
price of the remaining 2,550,000 outstanding
warrants sold in the March 2011 Offering was reduced to $1.00 per share as a result of the anti-dilution
adjustment.
Warrants Potentially Settleable in Cash
Certain warrants issued in connection with a registered direct stock offering on August 3,
2009 (the 2009 Offering) were determined not to be indexed to the Companys common stock as they
are potentially settleable in cash. The fair value of the warrants at the dates of issuance
totaling $2,863,000 was recorded as a liability and a cost of equity and was determined by the
Black-Scholes option pricing model. Due to the fact that the Company has limited trading history,
the Companys expected stock volatility assumption is based on a combination of implied
volatilities of similar entities whose shares or options are publicly traded. The Company
used a weighted average expected stock volatility of 122.69%. The expected life assumption is based
on the contract term of five years. The dividend yield of zero is
based on the fact that the Company has no
present intention to pay cash dividends. The risk free rate of 1.72% used for the warrants is equal
to the zero coupon rate in effect at the time of the grant. The decrease in the fair value of the
warrants from the date of issuance to June 30, 2011 is $2,718,000, of which $1,799,000 has been
included in other income and expense in the accompanying condensed statements of expenses for the
six months ended June 30, 2011. The fair value of the warrants at June 30, 2011 of $144,000 is
included as a current liability in the
accompanying balance sheets and was determined by the Black-Scholes option pricing model. Due
to the fact that the Company has limited trading history, the Companys expected stock volatility
assumption is based on a combination of implied volatilities of
similar entities whose shares or
options are publicly traded. The Company used a weighted average expected stock volatility
of 74.52%. The expected life assumption is based on the remaining contract term of 3.1 years. The
dividend yield of zero is based on the fact that we have no present intention to pay cash
dividends. The risk free rate of 0.81% used for the warrants is equal to the zero coupon rate in
effect on the date of the re-measurement.
Certain warrants issued in connection with the March 22, 2010 stock offering (the 2010
Offering) were determined not to be indexed to the Companys common stock as they are potentially
settleable in cash. The fair value of the warrants at the dates of issuance totaling $2,466,000 was
recorded as a liability and a cost of equity and was determined using the Black-Scholes option
pricing model. Due to the fact that the Company has limited trading history, our expected stock
volatility assumption is based on a combination of implied volatilities of similar entities whose
shares or options are publicly traded. The Company used a weighted average expected stock
volatility of 119.49%. The expected life assumption is based on the contract term of 6.5 years. The
dividend yield of zero is based on the fact that we have no present intention to pay cash
dividends. The risk free rate of 3.22% used for the warrants is equal to the zero coupon rate in
effect at the time of the grant. The decrease in the fair value of the warrants from date of
issuance to June 30, 2011 is $2,245,000, of which $974,000 has been included in other income and
expense in the accompanying condensed statements of expenses for the six months ended June 30,
2011. The fair value of the warrants at June 30, 2011 of $221,000 is included as a current
liability in the accompanying balance sheets and was determined by the Black-Scholes option pricing
model. Due to the fact that the Company has limited trading history, the Companys expected stock
volatility assumption is based on a combination of implied volatilities of similar entities whose
shares or options are publicly traded. The Company used a weighted average expected stock
volatility of 74.52%. The expected life assumption is based on the remaining contract term of 5.25
years. The dividend yield of zero is based on the fact that the Company has no present intention to
pay cash dividends. The risk free rate of 1.76% used for the warrants is equal to the zero coupon
rate in effect on the date of the re-measurement.
The
thirteen-month and five-year warrants issued in connection with the March 2011 Offering
were determined not to be indexed to the Companys common stock as they are potentially settleable
in cash. The fair value of the remaining 2,550,000 warrants at the date of issuance totaling
$1,790,000 was recorded as a liability and a cost of equity and was determined using the
Black-Scholes option pricing model. Due to the fact that the Company has limited trading history,
the Company expected stock volatility assumption is based on a combination of implied volatilities
of similar entities whose shares or options are publicly traded. The Company used a weighted
average expected stock volatility of 113.25%. The expected life assumption is based on the contract
term of 1.08 years used for the thirteen-month warrants and 5 years used for the five-year
warrants. The dividend yield of zero is based on the fact that we have no present intention to pay
cash dividends. The risk free rate of 0.26% used for the thirteen-month warrants and 2.17% used for
the five-year warrants is
13
equal to the zero coupon rate in effect at the time of the grant. The
decrease in the fair value of the warrants from date of issuance to
June 30, 2011 of $745,000 has
been included in other income and expense in the accompanying condensed statements of expenses for
the six months ended June 30, 2011. The fair value of the warrants at June 30, 2011 of $1,050,000
is included as a current liability in the accompanying balance sheets and was determined using the
Black-Scholes option pricing model. Due to the fact that the Company has limited trading history,
the Companys expected stock volatility assumption is based on a combination of implied
volatilities of similar entities whose shares or options are publicly traded. The Company
used a weighted average expected stock volatility of 74.52%. The expected life assumption is based
on the remaining contract term of one year used for the thirteen-month warrants and 4.7 years used
for the five- year warrants. The dividend yield of zero is based on the fact that the Company has
no present intention to pay cash dividends. The risk free rate of 0.19% used for the thirteen-month
warrants and 1.76% used for the five-year warrants is equal to the zero coupon rate in effect on
the date of the re-measurement.
The
warrants issued in connection with the April 2011 Offering, including the warrants issued
in exchanged for the March 2011 warrants, were determined not to be indexed to the Companys common
stock as they are potentially settleable in cash. The fair value of the warrants at the dates of
issuance totaling $11,442,000 was recorded as a liability and a cost of equity and was determined
using the Black-Scholes option pricing model. Due to the fact that the Company has limited trading
history, the Companys expected stock volatility assumption is based on a combination of implied volatilities
of similar entities whose shares or options are publicly traded. The Company used a weighted
average expected stock volatility of 99.04%. The expected life assumption is based on the contract
term of 7.0 years. The dividend yield of zero is based on the fact that we have no present
intention to pay cash dividends. The risk free rate of 2.81% used for the warrants is equal to the
zero coupon rate in effect at the time of the grant. The decrease in the fair value of the warrants
from date of issuance to June 30, 2011 is $1,875,000, of which all has been included in other
income and expense in the accompanying condensed statements of expenses for the six months ended
June 30, 2011. The fair value of the warrants at June 30,
2011 of $10,467,000 is included as a
current liability in the accompanying balance sheets and was determined by the Black-Scholes option
pricing model. Due to the fact that the Company has limited trading history, the Companys expected
stock volatility assumption is based on a combination of implied volatilities of similar entities
whose shares or options are publicly traded. The Company used a weighted average expected
stock volatility of 74.52%. The expected life assumption is based on the remaining contract term of
6.8 years. The dividend yield of zero is based on the fact that the Company has no present
intention to pay cash dividends. The risk free rate of 2.5% used for the warrants is equal to the
zero coupon rate in effect on the date of the re-measurement.
Additionally, in connection with the previously discussed exchange,
the Company recorded a loss of approximately $900,000 which accounts
for the remaining change in value during the period.
Stock Options Modified
On April 14, 2011, all of the Companys directors and certain of the Companys executive
officers executed agreements with the Company under which they agreed that none of their
outstanding stock options will be exercisable unless and until the
Company increases the number
of authorized shares of common stock to a number that is sufficient to permit the exercise or
conversion in full of all then
outstanding options of the Company (including their stock options), warrants and other securities
of the Company that are convertible into shares of common stock. An
aggregate of 3,489,256 option
shares are covered by these agreements. For accounting purposes, the agreement of all of the Companys
directors and certain executive officers to place restrictions of the exercisability of their options is treated as
a modification of their options resulting in the reclassification of the options from equity to a liability. In
connection with the modification, the Company will recognize compensation cost equal to the greater of (a)
the grant date fair value of the original equity award plus an incremental cost associated with the
modification or (b) the fair value of the modified award when it is settled.
As of June 30, 2011, the Company recorded a liability of
$682,000 representing the fair value of the vested portion of these options with a corresponding
decrease of $674,000 to additional paid in capital for previously recognized stock compensation
expense and a $7,000 charge to operations.
14
RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Recent Accounting Pronouncements
Effective January 1, 2010, the Company adopted Accounting Standards Update (ASU) No. 2010-06,
Fair
Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements
, or ASU 2010-06. A reporting entity should provide additional disclosures about the
different classes of assets and liabilities measured at fair value, the valuation techniques and
inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1,
2, and 3 fair value measurements. The adoption of the additional disclosures for Level 1 and Level
2 fair value measurements did not have an impact on the Companys financial position, results of operations
or cash flows. The disclosures regarding Level 3 fair value measurements were adopted by the
Company January 1, 2011 and did not have an impact on the Companys financial position, results of
operations or cash flows or require additional disclosures.
Effective January 1, 2010, the Company adopted ASU No. 2009-17,
Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with
Variable Interest Entities,
or ASU
2009-17. The amendments in this update replace the quantitative-based risks and rewards calculation
for determining which reporting entity, if any, has a controlling financial interest in a variable
interest entity with an approach focused on identifying which reporting entity has the power to
direct the activities of a variable interest entity that most significantly impact the entitys
economic performance and (1) the obligation to absorb losses of the entity or (2) the right to
receive benefits from the entity. An approach that is expected to be primarily qualitative will be
more effective for identifying which reporting entity has a controlling financial interest in a
variable interest entity. The amendments in this update also require additional disclosures about a
reporting entitys involvement in variable interest entities, which will enhance the information
provided to users of financial statements. The Company evaluated its business relationships to
identify potential variable interest entities and has concluded that consolidation of such
entities is not required for the periods presented. On a quarterly basis, the Company will continue
to has reassess its involvement with variable interest entities.
In December 2010, the FASB issued ASU No. 2010-28,
Intangibles Goodwill and Other (Topic 350):
When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative
Carrying Amounts
. ASU 2010-28 is effective for fiscal years beginning after December 15, 2010 and
amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with
zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate
that it is more likely than not that a goodwill
impairment exists. We do not believe that this will have a material impact on our consolidated
financial statements.
In December 2010, the FASB issued ASC Update 2010-29,
Business Combinations (Topic 805) -
Disclosure of Supplementary Pro Forma Information for Business Combinations
(Update No. 2010-29).
This Update requires a public entity to disclose pro forma information for business combinations
that occurred in the current reporting period. The disclosures include pro forma revenue and
earnings of the combined entity for the current reporting period as though the acquisition date for
all business combinations that occurred during the year had been as of the beginning of the annual
reporting period. If comparative financial statements are presented, the pro forma revenue and
earnings of the combined entity for the comparable prior reporting period should be reported as
though the acquisition date for all business combinations that occurred during the current year had
been as of the beginning of the comparable prior annual reporting period. This Update affects any
public entity that enters into business combinations that are material on an individual or
aggregate basis and is effective prospectively for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or after
December 15, 2010. The Company adopted updated No. 2010-29 beginning January 1, 2011.
The financial statements have been updated to reflect the adoption of
this pronouncement.
In May 2011, the Financial Accounting Standards Board (FASB) issued a
new accounting standard that clarifies the application of certain existing fair value measurement
guidance and expands the disclosures for fair value measurements that are estimated using
significant unobservable (Level 3) inputs. This new standard is effective on a prospective basis
for annual and interim reporting periods beginning on or after December 15, 2011. The Company does
not expect that adoption of this new standard will have a material impact on its condensed
consolidated financial statements.
In June 2011, the FASB issued a new accounting standard that eliminates the option to present
the components of other comprehensive income as part of the statement of changes in stockholders
equity, requires the consecutive presentation of the statement of net income and other
comprehensive income and requires an entity to present reclassification adjustments on the face of
the financial statements from other comprehensive income to net income. The amendments in this new
standard do not change the items that must be reported in other comprehensive income or when an
item of other comprehensive income must be reclassified to net income nor do the amendments affect
how earnings per share is calculated or presented. This new standard is required to be applied
retrospectively and is effective for fiscal years and interim periods within those years beginning
after December 15, 2011. As this new standard only requires enhanced disclosure, the adoption of
this standard will not impact the Companys condensed consolidated financial statements.
15
RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Subsequent Events
The Company evaluated all events or transactions that occurred after June 30, 2011 up through
the date these financial statements were issued. Other than what is disclosed below, during this
period, the Company did not have any material recognizable or unrecognizable subsequent events.
On April 21, 2011, the Companys Board of Directors authorized an increase in the Companys
authorized shares of common stock to 125,000,000 shares, subject to approval of the Companys
stockholders. On July 15, 2011, the Companys stockholders approved the amendment.
On April 21, 2011, our Board of Directors adopted an amendment to the 2007 Incentive Plan that
would increase the maximum number of shares of common stock authorized for issuance under the 2007
Incentive Plan by 2,000,000 shares to a total of 8,750,000 shares. On July 15, 2011, the Companys
stockholders approved the amendment.
16
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In
this document, we, our, ours,
us, RXi and the Company
refer to RXi Pharmaceuticals Corporation and Apthera,
Inc., its wholly owned subsidiary.
This managements discussion and analysis of financial condition as of June 30, 2011 and
results of operations for the three months and six months ended June 30, 2011 and 2010 should be
read in conjunction with managements discussion and analysis of financial condition and results of
operations included in our Annual Report on
Form 10-K
for the year ended December 31, 2010 which
was filed with the SEC on April 15, 2011.
The discussion and analysis below includes certain forward-looking statements related to
future operating losses and our potential for profitability, the sufficiency of our cash resources,
our ability to obtain additional equity or debt financing, possible partnering or other strategic
opportunities for the development of our products, as well as other statements related to the
progress and timing of product development, present or future licensing, collaborative or financing
arrangements or that otherwise relate to future periods, which are all forward-looking statements
as defined by the Private Securities Litigation Reform Act of 1995. These statements represent,
among other things, the expectations, beliefs, plans and objectives of management and/or
assumptions underlying or judgments concerning the future financial performance and other matters
discussed in this document. The words may, will, should, plan, believe, estimate,
intend, anticipate, project, and expect and similar expressions are intended to identify
forward-looking statements. All forward-looking statements involve certain risks, uncertainties and
other factors described elsewhere in our Annual Report on
Form 10-K
for the year ended December 31,
2010, that could cause our actual results of operations, performance, financial position and
business prospects and opportunities for this quarter and the periods that follow to differ
materially from those expressed in, or implied by, those forward-looking statements. We caution
investors not to place significant reliance on the forward-looking statements contained in this
report. These statements, like all statements in this report, speak only as of the date of this
report (unless another date is indicated) and we undertake no obligation to update or revise
forward-looking statements.
Overview
RXi Pharmaceuticals
Corporation (NASDAQ: RXII) is a biotechnology
company focused on discovering, developing and commercializing innovative therapies addressing
major unmet medical needs using targeted biotherapeutics. RXi is pursuing the development of novel
cancer therapeutics using peptide-based immunotherapy products, including our main product
candidate, NeuVax (E75), for the treatment of various cancers.
Results of Operations
For the Three and Six Months Ended June 30, 2011 and June 30, 2010
We
reported a loss from operations of $4,622,000, which includes $506,000 of non-cash equity
based compensation, for the three months ended June 30, 2011 compared with a loss from operations of
$4,754,000, which includes $1,616,000 of non-cash equity compensation, in 2010. The decrease in loss
of $132,000, or 3%, was due primarily to a $1,110,000 decrease in non-cash equity compensation and
a $44,000 decrease in general and administrative expenses offset by
an increase of $1,022,000 in
research and development expenses, as noted below.
We
reported a loss from operations of $9,901,000, which includes $1,919,000 of non-cash equity
based compensation, for the six months ended June 30, 2011 compared with a loss from operations of
$9,210,000, which includes $3,125,000 of non-cash equity based
compensation, in 2010. The increase in
loss of $691,000, or 8%, was due primarily to a $1,206,000 decrease in non-cash equity compensation
offset by a $1,468,000 increase in research and development expenses and an increase of $429,000 in
general and administrative expenses, as noted below.
For
the three months ended June 30, 2011, our net loss was approximately $1,382,000 compared
with a net loss of $2,141,000 for the three months ended June 30, 2010. The decrease in net loss of
$759,000 or 35% includes the loss from operations of
$4,622,000 and
$3,243,000 in non-cash other income related to the change in fair value of common stock warrants
issued in several financing transactions. The result was a net loss per share of $0.04 and $0.12
for the three months ended June 30, 2011 and 2010, respectively.
Variations in the
losses between the two periods are discussed below.
For the six months ended June 30, 2011, our net loss was approximately $5,227,000 compared with a net loss of
$6,027,000 for the six months ended June 30, 2010. The decrease in net loss of $800,000, or 13%, includes the
loss from operations of $9,901,000 offset by other income of $4,678,000 related to the change in fair
value of warrants issued in several financing transactions and
government grant monies received. The
result was a net loss per share of $0.18 and $0.35
for the six months ended June 30, 2011 and 2010, respectively. Variations in the losses between the two
periods are discussed below.
17
Research and Development Expense
Research and development expense consists primarily of compensation-related costs for our
employees dedicated to research and development activities and for our Scientific Advisory Board
(SAB) members, as well as licensing fees, patent prosecution costs, and the cost of lab supplies
used in our research and development programs. We expect research and development expenses to
increase as we expand our discovery and development activities.
Total research and development
expenses were approximately $2,673,000 for the three months ended June 30, 2011,
compared with $2,264,000 for the three months ended June 30, 2010.
The increase of $409,000, or 18%, was primarily due to an increase of $1,022,000 in
research and development cash expenses due to a ramp up in NeuVax-related consulting fees and activities in
our progression toward releasing NeuVax off clinical hold offset by a decrease of $558,000 in non-employee non-cash
stock based compensation related to a change in our Black-Scholes assumptions and $55,000 in employee non-cash
stock based compensation.
Total research and
development expenses were approximately $4,833,000 for the six months ended
June 30, 2011, compared with $4,190,000 for the six months ended June 30, 2010. The increase of
$643,000, or 15%, was primarily due to an increase of $1,468,000 in research and development cash expenses due to a ramp up in NeuVax-related
consulting fees and activities in our progression toward releasing
NeuVax off clinical hold, which was partially
offset by a decrease of $743,000 in non-employee non-cash stock based
compensation and a $82,000 decrease in employee non-cash stock based
compensation.
General and Administrative Expense
General and administrative expenses include compensation-related costs for our employees
dedicated to general and administrative activities, legal fees, audit and tax fees, consultants and
professional services, and general corporate expenses.
General and administrative expenses were approximately $1,949,000 for the three months ended
June 30, 2011, compared with $2,490,000 for the three months ended June 30, 2010. The decrease of
$541,000, or 22%, was primarily due to a $318,000 decrease in non-cash employee stock based
compensation and a $179,000 decrease due to non-cash stock based compensation expense related to a
change in our Black-Scholes assumptions. Excluding these non-cash
items, general and administrative
expenses were approximately $1,610,000 for the three months ended June 30, 2011, compared with
$1,654,000 for the three months ended June 30, 2010. The decrease of $44,000 was primarily due to a
decrease in headcount offset by severance payments in connection with a reduction in force.
General and administrative expenses were approximately $5,068,000 for the six months ended
June 30, 2011, compared with $5,020,000 for the six months ended June 30, 2010. The increase of
$48,000, or 1%, was primarily due to a $413,000 decrease in non-cash stock based compensation
related to a warrant issued for business advisory services offset by a $9,000 increase in employee
non-cash stock based compensation and a $23,000 increase due to non-cash stock based compensation
expense. Excluding these non-cash items, general and administration expense were approximately
$3,531,000 for the six months ended June 30, 2011, compared with $3,102,000 for the six months
ended June 30, 2010. The increase of $429,000 was primarily due
to severance payments in connection
with a reduction in force.
Interest Income
Interest income was negligible for the three and six months ended June 30, 2011 and 2010. The
key objectives of our investment policy are to preserve principal and ensure sufficient liquidity,
so our invested cash may not earn as high a level of income as longer-term or higher risk
securities, which generally have less liquidity and more volatility.
Other Income/Expense
Other income and expense for the three months ended June 30, 2011 was approximately $3,243,000
which includes $3,057,000 in non-cash income related to a gain on the change in the fair value of
common stock warrants issued in connection with several financing transactions in 2009, 2010 and
2011 and $186,000 in government grant monies received.
Other income and expense for the six months ended June 30, 2011 was approximately $4,678,000
which includes $4,493,000 in non-cash income related to a gain on the change in the fair value of
common stock warrants issued in connection with several financing
transactions in 2009, 2010 and
2011 and $186,000 in government grant monies received. The fair value of the 2009, 2010 and 2011
warrants of $11,882,000 at June 30, 2011 is included as a current liability in the accompanying balance sheets and
were determined using the Black-Scholes option pricing model.
Liquidity and Capital Resources
We had cash and cash equivalents of approximately $17.9 million as of June 30, 2011, compared
with $5.1 million as of June 30, 2010. We have not generated revenue to date and may not generate
product revenue in the foreseeable future, if ever. We expect to incur significant operating losses
as we advance our product candidates through the drug development and regulatory process. In
addition to increasing research and development expenses, we expect general and administrative
costs to increase as we add personnel and assume Aptheras
operations. We will need to generate significant
revenues to achieve profitability and might never do so. In the absence of product revenues, our
potential
18
sources of operational funding are expected to be the proceeds from the sale of equity, funded
research and development payments and payments received under partnership and collaborative
agreements.
As a
result of our acquisition of Apthera and the expenses expected to be incurred in connection
with the Phase 3 clinical trial for NeuVax, we expect that our expenses will increase
significantly from historic levels for the foreseeable future. We believe that our existing cash
and cash equivalents should be sufficient to fund our operations
through at least the second quarter
of 2012. In the future, we will be dependent on obtaining funding from third parties, such as
proceeds from the sale of equity, funded research and development payments and payments under
partnership and collaborative agreements, in order to maintain our operations and meet our
obligations to licensors. There is no guarantee that additional equity or other funding will
be available to us on acceptable terms, or at all. If we fail to obtain additional funding when
needed, we would be forced to scale back, or terminate, our operations or to seek to merge with or
to be acquired by another company.
Net Cash Flow from Operating Activities
Net cash used in operating activities was approximately $7,086,000 for the six months ended
June 30, 2011, compared with $6,151,000 for the six months ended June 30, 2010. The increase of
approximately $935,000 resulted primarily from a net loss of $5,227,000, of which $1,810,000
related to stock-based compensation, $23,000 related to common stock issued in exchange for
services, $87,000 related to stock warrant expense in exchange for services, $84,000 related to
depreciation, a $7,000 loss on disposal of equipment, $900,000 related to the loss on exchange
of equity instruments, and $5,393,000 that reflects the fair value of warrants and mandatorily
redeemable stock obligations issued in financings completed by the Company
in 2009, 2010 and 2011 and $651,000 related to changes in current assets and liabilities.
Net Cash Flow from Investing Activities
Net cash used in investing activities was approximately $115,000 for the six months ended June
30, 2011, compared with $6,050,000 for the six months ended June 30, 2010. The increase was
primarily due to $168,000 in cash received from the Apthera acquisition offset by $53,000 in
purchases of equipment and furnishings in 2011 compared with $5,996,000 in the purchase of short term investments and $54,000 in purchases of equipment and furnishing for the same period in 2010.
Net Cash Flow from Financing Activities
Net cash provided by financing activities was $18,013,000 for the six months ended June 30,
2011, compared with $11,610,000 for the six months ended June 30, 2010. The increase was primarily
due to net proceeds from the issuance of common stock in the amount
of $18,060,000 from the March and April 2011 financings compared with net proceeds from the issuance of common stock
in the amount of $15,235,000 from the financing completed in the
first half of 2010.
Off-Balance Sheet Arrangements
We have not entered into off-balance sheet financing, other than operating leases.
Critical Accounting Policies and Estimates
In our Annual Report on Form 10-K for the year ended December 31, 2010, we disclosed our
critical accounting policies and estimates upon which our financial statements are derived. There
have been no changes to these policies since December 31, 2010. Readers are encouraged to review
these disclosures in conjunction with the review of this quarterly report on Form 10-Q.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report on Form 10-Q, our Chief Executive
Officer and Chief Financial Officer (the Certifying Officers), evaluated the effectiveness of our
disclosure controls and procedures. Disclosure controls and procedures are controls and procedures
designed to reasonably assure that information required to be disclosed in our reports filed under
the Securities Exchange Act of 1934 (the Exchange Act), such as this Form 10-Q, is recorded,
processed, summarized and reported within the time periods specified in the SEC rules and forms.
Disclosure controls and procedures are also designed to reasonably assure that such information is
accumulated and communicated to our management, including the Certifying Officers, as appropriate
to allow timely decisions regarding required disclosure. Based on these evaluations, the Certifying
Officers have concluded, that, as of the end of the period covered by this quarterly report on Form
10-Q:
(a)
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our disclosure controls and procedures were effective to provide
reasonable assurance that information required to be disclosed by
us in the reports we file or submit under the Exchange Act was
recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms; and
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(b)
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our disclosure controls and procedures were effective to provide
reasonable assurance that material information required to be
disclosed by us in the reports we file or submit under the
Exchange Act was accumulated and communicated to our management,
including the
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19
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Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.
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Changes in Internal Control over Financial Reporting
There has not been any change in our internal control over financial reporting that occurred
during the quarterly period ended June 30, 2011 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
20
RXi PHARMACEUTICALS CORPORATION
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 1.A RISK FACTORS
You should consider the Risk Factors included under Item 1A. of our annual report on Form 10-K
for the year ended December 31, 2010, filed on April 15,2011 with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In connection
with the completion on April 13, 2011 of our acquisition of Apthera, the Company
issued to the former Apthera shareholders an aggregate of approximately 5.0 million shares of
common stock of the Company. The shares were issued in a private transaction without registration
under the Securities Act of 1933, as amended (the Act), in reliance on the exemptions from
registration afforded by Section 4(2) of the Act and Regulation D under the Act.
In connection with
the completion of the April 2011 Offering, the Company issued warrants to
purchase 3,450,000 shares of common stock of the Company to several institutional investors in
exchange for warrants to purchase the same number of shares of our common stock that had been
acquired by the investors in our March 2011 Offering. The warrants were exchanged without
registration under the Act in reliance on the exemptions from registration afforded by Section 4(2)
of the Act and Regulation D under the Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM
4. REMOVED AND RESERVED
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
EXHIBIT INDEX
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Exhibit
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Number
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Description
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1.1
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Underwriting Agreement dated as of April 15, 2011 by and among RXi Pharmaceuticals Corporation and ROTH Capital Partners, LLC. (1)
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4.1
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Form of Common Stock Purchase Warrant issued in April 2011. (1)
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4.2
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Form of Warrant Exchange Agreement entered into on April 14, 2011 by RXi Pharmaceuticals Corporation with Cranshire Capital, LP,
Freestone Advantage Partners, LP, Capital Ventures International, Empery Asset Master, LTD, Hartz Capital Investments, LLC, Hudson
Bay Master Fund, LTD, Rockmore Investment Master Fund, LTD, Tenor Opportunity Master Fund, LTD, Aria Opportunity Fund, LTD,
Parsoon Opportunity Fund, LTD.
**
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10.1
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Patent and Technology License Agreement, dated September 11, 2006, by and among the Board of Regents of the University of Texas
System, the University of Texas M.D. Anderson Cancer Center, the Henry M. Jackson Foundation for the Advancement of Military
Medicine, Inc., and Advanced Peptide Therapeutics, Inc. (currently known as Apthera, Inc.). **
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10.2
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Amendment No. 1 to Patent and Technology License Agreement, dated December 21, 2007, by and among the Board of Regents of the
University of Texas System, the University of Texas M.D. Anderson Cancer Center, the Henry M. Jackson Foundation for the
Advancement of Military Medicine, Inc., and Apthera, Inc. (formerly known as Advanced Peptide Therapeutics, Inc.).**
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10.3
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Amendment No. 2 to Patent and Technology License Agreement, dated September 3, 2008, by and among the Board of Regents of the
University of Texas System, the University of Texas M.D. Anderson Cancer Center, the Henry M. Jackson Foundation for the
Advancement of Military Medicine, Inc., and Apthera, Inc. (formerly known as Advanced Peptide Therapeutics, Inc.).**
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10.4
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Amendment No. 3 to Patent and Technology License Agreement, dated July 8, 2009, by and among the Board of Regents of the
University of Texas System, the University of Texas M.D. Anderson Cancer Center, the Henry M. Jackson Foundation for the
Advancement of Military Medicine, Inc., and Apthera, Inc. (formerly known as Advanced Peptide Therapeutics, Inc.).**
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10.5
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Amendment No. 4 to Patent and Technology License Agreement, dated February 11, 2010, by and among the Board of Regents of the
University of Texas System, the University of Texas M.D. Anderson Cancer Center, the Henry M. Jackson Foundation for the
Advancement of Military Medicine, Inc., and Apthera, Inc. (formerly known as Advanced Peptide Therapeutics, Inc.). **
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10.6
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Amendment No. 5 to Patent and Technology License Agreement, dated January 10, 2011, by and among the Board of Regents of the
University of Texas System, the University of Texas M.D. Anderson Cancer Center, the Henry M. Jackson Foundation for the
Advancement of Military Medicine, Inc., and Apthera, Inc. (formerly known as Advanced Peptide Therapeutics, Inc.). **
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10.7
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Employment Agreement between RXi Pharmaceuticals Corporation and Mark J. Ahn, Ph.D., dated March 31, 2011. * (2)
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10.8
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Employment Agreement between RXi Pharmaceuticals Corporation and Mark W. Schwartz, Ph.D., dated April 13, 2011. * **
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10.9
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Employment Agreement between RXi Pharmaceuticals Corporation and Robert E. Kennedy, dated April 13, 2011. * **
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10.10
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Scientific Advisory Agreement
between RXi Pharmaceuticals Corporation and George E. Peoples, Ph.D.,
dated April 13, 2011.**
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10.11
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Form of Amendment to Stock Options
Granted under RXi Pharmaceuticals Corporation 2007 Incentive Plan, entered into in April 2011 by RXi Pharmaceuticals Corporation with all directors of RXi
Pharmaceuticals Corporation, as of April 1, 2011, and Mark J.
Ahn, Ph.D., Anastasia Khvorova, Ph.D., and Pamela Pavco, Ph.D. * **
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10.12
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Exclusive License Agreement, dated as of July 11, 2011, by and among The Henry M. Jackson Foundation for the Advancement of
Military Medicine, Inc., RXi Pharmaceuticals Corporation and its wholly-owned subsidiary, Apthera, Inc. **
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31.1
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Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer. **
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31.2
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Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer. **
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32.1
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Sarbanes-Oxley Act Section 906 Certifications of Chief Executive Officer and Chief Financial Officer. **
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101
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The following financial information from the Quarterly Report on Form 10-Q of RXi
Pharmaceuticals Corporation for the quarter ended June 30, 2011, formatted in XBRL (eXtensible
Business Reporting Language): (1) Condensed Consolidated Balance Sheets as of June 30, 2011 and
December 31, 2010; (2) Condensed Consolidated Statements of Expenses for the three months and six
months ended June 30, 2011 and 2010 and for the period from
January 1, 2003 (inception) to June
30, 2011; (3) Condensed Consolidated Statements of Cash Flows for the six months ended June 30,
2011 and 2010 and for the cumulative period from January 1, 2003 (inception) to June 30, 2011; and
(4) Notes to Condensed Consolidated Financial Statements (Unaudited).***
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Certain portions of the Exhibit have been omitted based upon a
request for confidential treatment filed by us with the Securities
and Exchange Commission. The omitted portions of the Exhibit have
been separately filed by us with the Securities and Exchange
Commission.
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*
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Indicates a management contract or compensatory plan or
arrangement.
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**
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Filed with this Quarterly Report on Form 10-Q.
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***
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In accordance with
Rule 406T of Regulation S-T, the XBRL-related information in Exhibit
101 to this Quarterly Report on Form 10-Q is deemed not filed or
part of a registration statement or prospectus for purposes of
Sections 11 and 12 of the Securities Act, is deemed not filed for
purposes of Section 18 of the Exchange Act, and otherwise is not
subject to liability under these sections, is not part of any registration statement or prospectus to which it relates and is not incorporated by reference into any registration statement, prospectus or other document.
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(1)
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Previously filed as an Exhibit to the Companys Form 8-K filed
on April 15, 2011 and incorporated by reference herein.
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(2)
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Previously filed as an Exhibit to the Companys Form 8-K filed
on April 5, 2011 and incorporated by reference herein.
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21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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RXi PHARMACEUTICALS CORPORATION (Registrant)
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By:
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/s/
Mark J. Ahn
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Mark J. Ahn
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President and Chief Executive Officer
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By:
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/s/
Robert E. Kennedy
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Robert E. Kennedy
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Vice President and Chief Financial Officer
Date: August 15, 2011
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22
Exhibit 10.8
Execution Version
EMPLOYMENT AGREEMENT
The
Employment Agreement (the
Agreement
) is made and
entered into as of April 13,
2011 (the
Effective Date
) by and between RXi Pharmaceuticals Corporation, a Delaware
corporation (the
Company
, or
Employer
), and Mark W. Schwartz, Ph.D., an
individual and resident of the State of California (
Employee
).
WHEREAS, Employer and Employee desire to enter into an employment agreement under which
Employee shall serve on a full-time basis as the Companys Executive Vice President and Chief
Operating Officer on the terms set forth in the Agreement, with the term of the Agreement to
commence on the Effective Date.
NOW, THEREFORE, upon the above premises, and in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows.
1.
Engagement
. Effective as of the Effective Date, Employer shall employ Employee, and
Employee shall serve, as the Companys Executive Vice President and Chief Operating Officer.
Employee understands that his duties as Executive Vice President and Chief Operating Officer may
change from time to time during the Term (as herewith defined) in the discretion of Employers
Board of Directors (hereinafter the
Board
), but such duties shall in all events be at
least consistent with the duties customarily assigned to the Executive Vice President and Chief
Operating Officer of a company substantially comparable as of the Effective Date to Employer. As a
condition to the Employees employment by the Employer, Employee and Employer shall execute the
Employee Confidentiality, Non-Competition, and Proprietary Information Agreement, attached hereto
as Exhibit 1 (the
Confidentiality Agreement
).
2.
Duties
. Employee shall perform all duties assigned to him in accordance with the
terms of this Agreement by the Board faithfully, diligently and to the best of his ability. Such
duties include, without limitation, the overseeing and implementation of the business plan adopted
by the Board (as may be revised from time to time by the Board). Employee shall perform the
services contemplated under this Agreement in accordance with the policies established by and under
the direction of the Board. Employee shall have such corporate power and authority as shall
reasonably be required to enable him to discharge his duties under this Agreement. Employees
services hereunder shall be rendered at Employees home office in Danville, CA (or such other
location consistent with Employees residence), except for travel when and as required in the
performance of Employees duties hereunder.
3.
Time and Efforts
. Employee shall devote all of his business time, efforts,
attention and energies to Employers business and the discharge of his duties hereunder.
Notwithstanding the foregoing, except as otherwise agreed to in writing, Employee shall have the
right to perform such incidental services as are necessary in connection with (a) his private
passive investments, (b) his charitable or community activities, (c) his participation in trade or
professional organizations and (d) his service on the board of directors (or comparable body) of
one third-party corporate entity that does not compete with the Company Business (as defined in the
Confidentiality Agreement), and teaching responsibilities of one class per semester at San Jose
State University, consistent with past responsibilities at the University.
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Employment Agreement
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Mark W. Schwartz, Ph.D.
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Page 1 of 7
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4.
Term
. Employees employment shall commence on the Effective Date and shall
terminate on April 13, 2012 (the
Term
), unless sooner terminated in accordance with
Section 6. Neither Employer nor Employee shall have any obligation to extend or renew this
Agreement or Employees employment. Unless the parties otherwise agree in writing, Employees
employment by Employer shall terminate upon any termination or expiration of this Agreement.
5.
Compensation
. As the total consideration for Employees services rendered under the
Agreement, Employer shall pay or provide Employee the following compensation and benefits:
5.1.
Salary
. Employee shall initially be entitled to receive an annual base salary
during the Term of Two Hundred Twenty Five Thousand Dollars ($225,000) (hereinafter the
Base
Salary
) payable in accordance with the usual payroll period of Employer, as established from
time to time. If and when during the Term the Company completes one or more financing transactions
(including the transaction currently being undertaken in conjunction with Roth) in which it sells
shares of its capital stock (or securities convertible into or exercisable or exchangeable for its
capital stock) (each, a
Financing
, and collectively, the
Financings
) resulting
in aggregate gross cash proceeds of at least $5.0 million, then the Base Salary shall be increased
to Two Hundred Seventy Five Thousand Dollars ($275,000) per annum. Further, if and when during the
Term the Company completes one or more Financings resulting in aggregate gross cash proceeds of at
least $10.0 million, then the Base Salary shall be increased to Three Hundred Thousand Dollars
($300,000) per annum. For purposes of this Agreement, a Financing shall not include any proceeds
to the Company resulting from the sale of Company capital stock pursuant to the exercise of stock
options or other issuances made primarily for compensatory purposes, or pursuant to the exercise of
warrants or other rights to purchase capital stock of the Company outstanding as of the Effective
Date.
5.2
Stock Option
. On the Effective Date, the Company shall grant Employee a stock
option (
Option
) under the Companys Amended and Restated 2007 Incentive Plan (the
Plan
) to purchase Forty Thousand (40,000) shares of the Companys common stock. Except as
provided in Section 6.2 of this Agreement, the Option shall vest in equal quarterly installments
over 3 years beginning on the first quarterly anniversary of the Effective Date, provided, in each
case, that Employee remains in the continuous employ of Employer through such quarterly anniversary
date. The Option shall (a) be exercisable at an exercise price per share equal to the closing
market price of the Companys common stock on the date of the grant, (b) have a term of ten years,
and (c) be on such other terms as shall be determined by the Board (or the Compensation Committee
of the Board) and set forth in a customary form of stock option agreement under the Plan evidencing
the Option.
5.3.
Expense Reimbursement
. Employer shall reimburse Employee for reasonable business
expenses incurred by Employee in connection with the performance of Employees duties in accordance
with Employers usual practices and policies in effect from time to time. Employer will reimburse
reasonable and customary expenses for the Employee to maintain his home office. Any reimbursements
hereunder shall be paid to Employee promptly in a lump sum in accordance with such expense
reimbursement policies and procedures then in effect.
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Employment Agreement
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Mark W. Schwartz, Ph.D.
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Page 2 of 7
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5.4.
Vacation
. Employee will be entitled to four weeks of paid time off (vacation
days plus sick time/personal time) for each full calendar year in accordance with the Companys
policies from time to time in effect, in addition to holidays observed by the Company (for partial
calendar years, the Employees paid time off will be pro-rated). Paid time off may be taken at
such times and intervals as the Employee shall determine, subject to the business needs of the
Company, and otherwise shall be subject to the policies of the Company, as in effect from time to
time. The number of paid time off days will accrue per pay period and will stop accruing once 20
days have been reached.
5.5.
Employee Benefits
. The Company shall provide Employee and his dependents with
coverage under all medical, dental and/or vision plans and other benefit programs available to the
Companys executives and their dependents, to the extent Employee and his dependents satisfy the
applicable eligibility requirements, and the Company shall pay, directly or indirectly, the monthly
and annual premiums associated with any such medical plans to the same extent the Company pays such
premiums for other executives of the Company. Employee shall be eligible to participate in any
medical insurance and other employee benefits made available by Employer to all senior executives
and/or all of employees of Employer under Employers plans and employment policies in effect during
the Term. Employee acknowledges and agrees that, any such plans or policies now or hereafter in
effect may be modified or terminated by Employer at any time in its discretion.
5.6.
Payroll Taxes
. Employer shall have the right to deduct from the compensation and
benefits due to Employee hereunder any and all sums required for social security and withholding
taxes and for any other federal, state, or local tax or charge which may be in effect or hereafter
enacted or required as a charge on the compensation or benefits of Employee.
6.
Termination
. The Agreement and Employees employment may be terminated as set
forth in this Section 6.
6.1.
Termination by Employer for Cause; Termination by Employee
. Employer may
terminate Employees employment hereunder for Cause upon notice to Employee, and Employee may
terminate his employment hereunder, for any reason or no reason, upon notice to Employer.
Cause
for the purpose of this Agreement shall mean any of the following:
(a) Employees breach of any material term of this Agreement including its Exhibits;
provided that the first occasion of any particular breach shall not constitute Cause unless
Employee shall have previously received written notice from Employer stating the nature of
such breach and affording Employee at least ten (10) days to correct such breach;
(b) Employees conviction of, or plea of guilty or
nolo contendere
to, any felony or
other crime of moral turpitude;
(c) Employees act of fraud or dishonesty injurious to Employer or its reputation;
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Employment Agreement
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Mark W. Schwartz, Ph.D.
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Page 3 of 7
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(d) Employees continual failure or refusal to perform his material duties as required
under the Agreement after written notice from Employer stating the nature of such failure or
refusal and affording Employee at least ten days to correct the same;
(e) Employees act or omission that, in the reasonable determination of Employers
Board (or a Committee of the Board), indicates alcohol or drug abuse by Employee; or
(f) Employees act or personal conduct that, in the judgment of the Board (or a
Committee of the Board), gives rise to a material risk of liability of Employee or Employer
under federal or applicable state law for discrimination, or sexual or other forms of
harassment, or other similar liabilities to subordinate employees.
Upon termination of Employees employment by Employer for Cause or by Employee for any reason,
all compensation and benefits to Employee hereunder shall cease except that Employee shall be
entitled to payment, not later than three days after the date of termination, of (i) any accrued
but unpaid salary and unused vacation time (only as accrued during the then-current year of
employment), and (ii) reimbursement of business expenses accrued but unpaid as of the date of
termination. In addition, Employers indemnification obligations shall remain in effect in
accordance with the terms thereof.
6.2.
Termination by Employer without Cause
. Employer may also terminate Employees
employment without Cause during the Term; provided, however, that (i) Employer shall remain
obligated to continue paying Employees Base Salary at the time of termination for the remainder of
the Term, and (ii) Employees Option shall continue to vest for the remainder of the Term. Upon
any termination pursuant to this paragraph, Employee shall, not later than three days after the
date of termination, be entitled to payment of any unused vacation time (only as accrued as of the
date of such termination and in accordance with applicable law) and reimbursement of business
expenses accrued but unpaid as of the date of termination.
Change of Control If in the change of control of the company, the compensation, benefits,
title, or duties of the Employee under this agreement are reduced, or the Employee must relocate
more then 50 miles from his current residence, the Employee is considered Terminated without Cause,
with all of the benefits and payments due Employee as detailed in Section 6.2 of this Employment
Agreement.
7.
Equitable Remedies; Injunctive Relief
. Employee hereby acknowledges and agrees that
monetary damages are inadequate to fully compensate Employer for the damages that would result from
a breach or threatened breach of the Confidentiality Agreement and, accordingly, that Employer
shall be entitled to equitable remedies, including, without limitation, specific performance,
temporary restraining orders, and preliminary injunctions and permanent injunctions, to enforce
such Section without the necessity of proving actual damages in connection therewith. The
provision shall not, however, diminish Employers right to claim and recover damages or enforce any
other of its legal or equitable rights or defenses.
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Employment Agreement
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Mark W. Schwartz, Ph.D.
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Page 4 of 7
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8.
Indemnification
. Employer and Employee acknowledge that, as the Executive Vice
President and Chief Operating Officer of Employer, Employee shall be a corporate officer of
Employer and, as such, Employee shall be entitled to indemnification to the full extent mandated by
Employer to its officers, directors and agents under the Employers Certificate of Incorporation
and Bylaws as in effect as of the date of this Agreement.
9.
Severable Provisions
. The provisions of this Agreement are severable and if any
one or more provisions is determined to be illegal or otherwise unenforceable, in whole or in part,
the remaining provisions, and any partially unenforceable provisions to the extent enforceable,
shall nevertheless be binding and enforceable.
10.
Successors and Assigns
. This Agreement shall inure to the benefit of and shall be
binding upon and enforceable by Employer, its successors and assigns and Employee and his heirs and
representatives; provided, however, that neither party may assign the Agreement without the prior
written consent of the other party. Employer will cause any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or
assets of Employer to assume expressly and agree to perform this Agreement in the same manner and
to the same extent that Employer would have been required to perform it.
11.
Entire Agreement
. This Agreement, including the Confidentiality Agreement,
contains the entire agreement of the parties relating to the subject matter hereof, and the parties
hereto have made no agreements, representations or warranties relating to the subject matter of the
Agreement that are not set forth otherwise therein or herein. Except as expressly provided herein,
this Agreement (including the Confidentiality Agreement) supersedes any and all prior or
contemporaneous agreements, written or oral, between Employee and Employer relating to the subject
matter hereof. Any such prior or contemporaneous agreements, as well as that certain Employment
Agreement between Employee and Apthera, Inc. (
Apthera
) dated April 1, 2010, as amended on
July 1, 2010 (the
Prior Agreement
), are hereby terminated and of no further effect, and
Employee, by the execution hereof, agrees that any compensation provided for under any such
agreements is specifically superseded and replaced by the provisions of this Agreement (including
the Confidentiality Agreement). Employee acknowledges that all compensation and other obligations
owed to Employee by Apthera pursuant to the Prior Agreement have been fully and finally paid and
satisfied as of the Effective Date.
12.
Amendment
. No modification of this Agreement shall be valid unless made in
writing, approved by the Employers Board (or a committee of the Board) and signed by the parties
hereto and unless such writing is made by an executive officer of Employer (other than Employee).
The parties hereto agree that in no event shall an oral modification of this Agreement be
enforceable or valid.
13.
Governing Law; Arbitration
. This Agreement is and shall be governed and construed
in accordance with the laws of the State of Delaware without giving effect to the choice-of-law
rules of Delaware. Except to the extent a remedy is sought as described in Section 7, above, any
dispute arising out of, or relating to, this Agreement or the breach thereof, or regarding the
interpretation thereof, shall be exclusively decided by binding arbitration
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Employment Agreement
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Mark W. Schwartz, Ph.D.
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Page 5 of 7
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conducted in Los Angeles, California in accordance with the rules of the American Arbitration
Association (the AAA) then in effect before a single arbitrator appointed in accordance with such
rules. Judgment upon any award rendered therein may be entered and enforcement obtained thereon in
any court having jurisdiction. Each of the parties agrees that service of process in such
arbitration proceedings shall be satisfactorily made upon it if sent by registered mail addressed
to it at the address referred to in Section 14 below. The costs of such arbitration shall be borne
proportionate to the finding of fault as determined by the arbitrator. Judgment on the arbitration
award may be entered by any court of competent jurisdiction.
14.
Notice
. All notices and other communications under this Agreement shall be in
writing and mailed, electronically mailed, telecopied (in case of notice to Employer only) or
delivered by hand or by a nationally recognized courier service guaranteeing overnight delivery to
a party at the following address (or to such other address as such party may have specified by
notice given to the other party pursuant to the provision):
If to Employer:
RXi Pharmaceuticals Corporation
60 Prescott St.
Worcester, MA 01605
Attention: Chief Executive Officer
Fax: (508) 767-3862
Email: mahn@rxipharma.com
If to Employee:
Through company e-mail or company regular mail box if employed by Company or if not employed:
Mark W. Schwartz, Ph.D.
305 Love Lane
Danville, CA 94526
Email: mwschwartz@yahoo.com
15.
Survival
. Sections 7 through 16 shall survive the expiration or termination of
the Agreement.
16.
Counterparts
. The Agreement may be executed in counterparts, each of which shall
be deemed to be an original and all of which together shall be deemed to be one and the same
agreement.
18.
Attorneys Fees
. In any action or proceeding to construe or enforce any provision
of the Agreement the prevailing party shall be entitled to recover its or his reasonable attorneys
fees and other costs of suit in addition to any other recoveries.
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Employment Agreement
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Mark W. Schwartz, Ph.D.
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Page 6 of 7
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IN WITNESS WHEREOF, the Agreement is executed as of the day and year first above written.
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EMPLOYER
RXi Pharmaceuticals Corporation
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By:
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/s/ Mark J. Ahn
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Name:
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Mark J. Ahn, Ph.D.
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Its:
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President & Chief Executive Officer
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EMPLOYEE
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/s/ Mark W. Schwartz
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Mark W. Schwartz, Ph.D.
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Employment Agreement
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Mark W. Schwartz, Ph.D.
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Page 7 of 7
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Exhibit 1
RXi Pharmaceuticals Corporation
EMPLOYEE CONFIDENTIALITY, NON-COMPETITION, AND
PROPRIETARY INFORMATION AGREEMENT
AGREEMENT,
effective as of April 13, 2011, between RXi Pharmaceuticals Corporation, a
Delaware corporation (the Company), and Mark W. Schwartz, Ph.D. (the Employee).
1. Employee will make full and prompt disclosure to the Company of all inventions,
improvements, modifications, discoveries, methods, technologies, biological materials, and
developments, and all other materials, items, techniques, and ideas related directly or indirectly
to the business of the Company, whether patentable or not, made or conceived by Employee or under
Employees direction during Employees employment with the Company, whether or not made or
conceived during normal working hours, or on the premises of the Company (all of which are
collectively termed Intellectual Property hereinafter).
2. Employee agrees that all Intellectual Property, as defined above, shall be the sole
property of the Company and its assigns, and the Company and its assigns shall be the sole owner of
all patents and other rights in connection therewith. Employee hereby assigns to the Company any
rights Employee may have or acquire in all Intellectual Property and all related patents,
copyrights, trademarks, trade names, and other industrial and intellectual property rights and
applications therefore, in the United States and elsewhere. Employee further agrees that with
regard to all future developments of Intellectual Property, Employee will assist the Company in
every way that may be reasonably required by the Company (and at the Companys expense) to obtain
and, from time to time, enforce patents on Intellectual Property in any and all countries that the
Company may require, and to that end, Employee will execute all documents reasonably necessary for
use in applying for and obtaining such patents thereon and enforcing the same, as the Company may
desire, together with any assignment thereof to the Company or persons designated by the Company,
and Employee hereby appoints the Company as Employees attorney to execute and deliver any such
documents or assignments requested by the Company (but only for the purpose of executing and filing
any such document). Employees obligation to assist the Company in obtaining and enforcing patents
for Intellectual Property in any and all countries shall continue beyond the termination of
Employees employment with the Company, but the Company shall compensate Employee at a reasonable,
standard hourly rate following such termination for time directly spent by Employee at the
Companys request for such assistance.
3. Employee hereby represents that Employee has no continuing obligation to assign to any
former employer or any other person, corporation, institution, or firm any Intellectual Property as
described above. Employee represents that Employees performance of all the terms of this
Agreement and as an employee of the Company does not and will not breach any agreement to keep in
confidence proprietary information acquired by Employee, in confidence or in trust, prior to
Employees employment by the Company. Employee has not entered into, and Employee agrees not to
enter into, any agreement (either written or oral), which would put Employee in conflict with this
Agreement.
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Exhibit 1
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Mark W. Schwartz, Ph.D.
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Page 1 of 6
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4. Employee agrees to assign to the Company any and all copyrights and reproduction rights to
any material prepared by Employee in connection with this Agreement and/or developed by Employee
during Employees employment with the Company that are related directly or indirectly to the
business of the Company.
5. Employee understands and agrees that a condition of Employees employment and continued
employment with the Company is that Employee has not brought and will not bring to the Company or
use in the performance of Employees duties at the Company any materials or documents rightfully
belonging to a former employer which are not generally available to the public.
6. Employee recognizes that the services to be performed by Employee hereunder are special,
unique, and extraordinary and that, by reason of Employees employment with the Company, Employee
may acquire Confidential Information (as hereinafter defined) concerning the operation of the
Company, the use or disclosure of which would cause the Company substantial loss and damage which
could not be readily calculated and for which no remedy at law would be adequate. Accordingly,
Employee agrees that Employee will not (directly or indirectly) at any time, whether during or for
a period of seven (7) years after Employees employment with the Company:
(i) knowingly use for personal benefit or for any other reason not authorized by the Company any
Confidential Information that Employee may acquire or has acquired by reason of Employees
employment with the Company, or;
(ii) disclose any such Confidential Information to any person or entity except (A) in the
performance of Employee obligations to the Company hereunder, (B) as required by a court of
competent jurisdiction, (C) in connection with the enforcement of Employee rights under this
Agreement, or (D) with the prior consent of the Board of Directors of the Company.
As used herein, Confidential Information includes proprietary and confidential information
with respect to the facilities and methods of the Company, reagents, chemical compounds, cell lines
or subcellular constituents, organisms, or other biological materials, trade secrets, and other
Intellectual Property, systems, patent applications, procedures, manuals, confidential reports,
financial information, business plans, prospects, or opportunities, personnel information, or lists
of customers and suppliers which are generally known only to the Company provided, however, that
Confidential Information shall not include any information that is known or becomes generally known
or available publicly other than as a result of disclosure by Employee which is not permitted as
described in clause (ii) above, or the Company discloses same to others without obtaining an
agreement of confidentiality.
Employee confirms that all Confidential Information is the exclusive property of the Company.
All business records, papers, documents and electronic materials kept or made by Employee relating
to the business of the Company which comprise Confidential Information shall be and remain the
property of the Company during the Employees employment and at all times thereafter. Upon the
termination, for any reason, of Employees employment with the Company, or upon the request of the
Company at any time, Employee shall deliver to the
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Exhibit 1
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Mark W. Schwartz, Ph.D.
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Page 2 of 6
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Company, and shall retain no copies of any written or electronic materials, records and documents
made by Employee or coming into Employees possession concerning the business or affairs of the
Company and which comprise Confidential Information.
7. During the term of Employees employment with the Company and for one (1) year thereafter
(the Restricted Period), the Employee shall not directly or indirectly, for Employees own
account or for the account of others, as an officer, director, stockholder (other than as the
holder of less than 1% of the outstanding stock of any publicly traded company), owner, partner,
employee, promoter, consultant, manager or otherwise participate in the promotion, financing,
ownership, operation, or management of, or assist in or carry on through proprietorship, a
corporation, partnership, or other form of business entity which is in competition with the Company
in the field of the development of pharmaceutical vaccine products or vaccine product candidates
for the treatment of HER2-positive breast cancer (the Company Business) within the United States
or any other country in which the Company is conducting or is actively seeking or planning to
conduct the Company Business as of the date of such termination. Notwithstanding the foregoing,
except as otherwise agreed to in writing, Employee shall have the right to perform such incidental
services as are necessary in connection with (a) his private passive investments, (b) his
charitable or community activities,(c) his participation in trade or professional organizations,
and (d) his service on the board of directors (or comparable body) of one third-party corporate
entity that does not compete with the Company Business.
During the Restricted Period, the Employee shall not, whether for Employees own account or
for the account of any other person (excluding the Company):
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(i)
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solicit or contact in an effort to do business with any person who was or is a
customer of the Company during the Restricted Period, or any affiliate of any such
person, if such solicitation or contact is for the purpose of competition in the field
of cancer vaccines for HER2 positive breast cancer with the Company; or
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(ii)
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solicit or induce any of the Companys employees to leave their employment with
the Company or accept employment with anyone else, or hire any such employees or
persons who were employed by the Company during the Restricted Period.
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Nothing herein shall prohibit or preclude the Employee from performing any other types of
services that are not precluded by this Section 7 for any other person.
The Employee shall give prompt notice to the Company of the Employees acceptance of
employment or other fees for services relationship in the field of cancer vaccines for HER2
positive breast cancer during the Restricted Period, which notice shall include the name of, the
business of, and the position that Employee shall hold with such other entity.
8. In the event that Employees employment is transferred by the Company to a subsidiary,
affiliated company, or acquiring company (as the case may be), Employees employment by such
company will, for the purpose of this Confidentiality, Non-Competition, and Proprietary Information
Agreement, be considered as continued employment with the Company, unless Employee executes an
agreement, substantially similar in substance to this
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Exhibit 1
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Mark W. Schwartz, Ph.D.
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Page 3 of 6
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Agreement, and until the effective date of said agreement in any such company for which
Employee becomes employed. It is further agreed that changes in Employees position or title or
location unless expressly agreed to in writing will operate to terminate this Confidentiality,
Non-Competition, and Proprietary Information Agreement without Cause.
9. Upon termination of Employees employment for any reason, unless such employment is
transferred to a subsidiary, affiliated or acquiring company of the Company, Employee agrees to
leave with, or return to, the Company all records, drawings, notebooks, and other documents
pertaining to the Companys Confidential Information, whether prepared by Employee or others, as
well as any equipment, tools or other devices owned by the Company, that are then in Employees
possession, however such items were obtained, and Employee agrees not to reproduce or otherwise
retain any document or data relating thereto.
10. Employee obligations under this Agreement shall survive the termination of Employees
employment with the Company for the respective periods specifically set forth herein regardless of
the manner of, and reason for, such termination, and shall be binding upon Employees heirs,
executors, and administrators.
11. Employee understands and agrees that no license to any of the Companys trademarks,
patents, copyrights or other proprietary rights is either granted or implied by Employees access
to and utilization of the Confidential Information or Intellectual Property.
12. No delay or omission by the Company in exercising any right under this Agreement will
operate as a waiver of that or any other right. A waiver or consent given by the Company on any
one occasion is effective only in that instance and will not be construed as a bar to or waiver of
any right on any other occasion.
13. Employee agrees that in addition to any other rights and remedies available to the Company
for any breach or threatened breach by Employee of Employees obligations hereunder, the Company
shall be entitled to enforcement of Employees obligations hereunder by whatever means are at the
Companys disposal, including court injunction.
14. The Company may assign this Agreement to any other corporation or entity which acquires
(whether by purchase, merger, consolidation or otherwise) all or substantially all of the business
and/or assets of the Company. In the case of a change of control of the Company in which the
compensation, title, duties are reduced, or requires the Employee to relocate more than 50 miles
from his then current residence, the Employee is considered Terminated without Cause, with all of
the benefits and payments due Employee under Section 6.2 of the Employee Agreement. Employee shall
have no rights of assignment.
15. If any provision of this Agreement shall be declared invalid, illegal, or unenforceable,
then such provision shall be enforceable to the extent that a court deems it reasonable to enforce
such provision. If such provision shall be unreasonable to enforce to any extent, such provision
shall be severed and all remaining provisions shall continue in full force and effect.
16. This Agreement shall be effective as of the date first written above.
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Exhibit 1
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Mark W. Schwartz, Ph.D.
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Page 4 of 6
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17. This Agreement shall be governed in all respects by the laws of the State of Delaware,
without regard to principles of conflicts of law.
[Signature Page Follows]
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Exhibit 1
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Mark W. Schwartz, Ph.D.
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Page 5 of 6
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IN WITNESS WHEREOF
, Employee has executed this Agreement as of the date set forth above:
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BY:
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/s/ Mark W. Schwartz
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Name of Employee: Mark W. Schwartz, Ph.D.
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ACCEPTED AND AGREED TO:
RXi Pharmaceuticals Corporation
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BY:
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/s/ Mark J. Ahn
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Name:
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Mark J. Ahn, Ph.D.
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Title:
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President & Chief Executive Officer
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Exhibit 1
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Mark W. Schwartz, Ph.D.
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Page 6 of 6
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Exhibit 10.9
Execution Version
EMPLOYMENT AGREEMENT
The Employment Agreement (the
Agreement
) is made and entered into as of April 13,
2011 (the
Effective Date
) by and between RXi Pharmaceuticals Corporation, a Delaware
corporation (the
Company
, or
Employer
), and Robert E. Kennedy, an individual
and resident of the State of Arizona (
Employee
).
WHEREAS, Employer and Employee desire to enter into an employment agreement under which
Employee shall serve on a full-time basis as the Companys Vice President and Chief Financial
Officer on the terms set forth in the Agreement, with the term of the Agreement to commence on the
Effective Date.
NOW, THEREFORE, upon the above premises, and in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows.
1.
Engagement
. Effective as of the Effective Date, Employer shall employ Employee, and
Employee shall serve, as the Companys Vice President and Chief Financial Officer. Employee
understands that his duties as Vice President and Chief Financial Officer may change from time to
time during the Term (as herewith defined) in the discretion of Employers Board of Directors
(hereinafter the
Board
), but such duties shall in all events be at least consistent with
the duties customarily assigned to the Vice President and Chief Financial Officer of a company
substantially comparable as of the Effective Date to Employer. As a condition to the Employees
employment by the Employer, Employee and Employer shall execute the Employee Confidentiality,
Non-Competition, and Proprietary Information Agreement, attached hereto as Exhibit 1 (the
Confidentiality Agreement
).
2.
Duties
. Employee shall perform all duties assigned to him in accordance with the
terms of this Agreement by the Board faithfully, diligently and to the best of his ability. Such
duties include, without limitation, the overseeing and implementation of the business plan adopted
by the Board (as may be revised from time to time by the Board). Employee shall perform the
services contemplated under this Agreement in accordance with the policies established by and under
the direction of the Board. Employee shall have such corporate power and authority as shall
reasonably be required to enable him to discharge his duties under this Agreement. Employees
services hereunder shall be rendered in or around the vicinity of the Employees residence, at
Employers offices in Worcester, MA, or such other location as the parties may agree, except for
travel when and as required in the performance of Employees duties hereunder.
3.
Time and Efforts
. Employee shall devote all of his business time, efforts,
attention and energies to Employers business and the discharge of his duties hereunder.
Notwithstanding the foregoing, except as otherwise agreed to in writing, Employee shall have the
right to perform such incidental services as are necessary in connection with (a) his private
passive investments, (b) his charitable or community activities, (c) his participation in trade or
professional organizations and (d) his service on the board of directors (or comparable body) of
one third-party corporate entity that does not compete with the Company Business (as defined in the
Confidentiality Agreement).
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Employment Agreement
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Robert E. Kennedy
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Page 1 of 7
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4.
Term
. Employees employment shall commence on the Effective Date and shall
terminate on April 13, 2012 (the
Term
), unless sooner terminated in accordance with
Section 6. Neither Employer nor Employee shall have any obligation to extend or renew this
Agreement or Employees employment. Unless the parties otherwise agree in writing, Employees
employment by Employer shall terminate upon any termination or expiration of this Agreement.
Employer agrees to apply its best efforts to negotiate in good faith a replacement employment
agreement with the Executive on or before September 30, 2011. In the event the parties have not
entered into a new employment agreement by October 1, 2011 then, immediately upon the Employees
written request, Employer shall terminate Employee without cause and all of the provisions of
Section 6.2 shall apply.
5.
Compensation
. As the total consideration for Employees services rendered under the
Agreement, Employer shall pay or provide Employee the following compensation and benefits:
5.1.
Salary
. Employee shall initially be entitled to receive an annual base salary
during the Term of One Hundred Seventy Five Thousand Dollars ($175,000) (hereinafter the
Base
Salary
) payable in accordance with the usual payroll period of Employer, as established from
time to time. If and when during the Term the Company completes one or more financing transactions
in which it sells shares of its capital stock (or securities convertible into or exercisable or
exchangeable for its capital stock) (each, a
Financing
, and collectively, the
Financings
) resulting in aggregate gross cash proceeds of at least $5.0 million, then the
Base Salary shall be increased to Two Hundred Thousand Dollars ($200,000) per annum. Further, if
and when during the Term the Company completes one or more Financings resulting in aggregate gross
cash proceeds of at least $7.5 million, then the Base Salary shall be increased to Two Hundred
Twenty Five Thousand Dollars ($225,000) per annum. For purposes of this Agreement, a Financing
shall not include any proceeds to the Company resulting from the sale of Company capital stock
pursuant to the exercise of stock options or other issuances made primarily for compensatory
purposes, or pursuant to the exercise of warrants or other rights to purchase capital stock of the
Company outstanding as of the Effective Date.
5.2
Stock Option
. On the Effective Date, the Company shall grant Employee a stock
option (
Option
) under the Companys Amended and Restated 2007 Incentive Plan (the
Plan
) to purchase Thirty Thousand (30,000) shares of the Companys common stock. Except
as provided in Section 6.2 of this Agreement, the Option shall vest in equal quarterly installments
over 3 years beginning on the first quarterly anniversary of the Effective Date, provided, in each
case, that Employee remains in the continuous employ of Employer through such quarterly anniversary
date. The Option shall (a) be exercisable at an exercise price per share equal to the closing
market price of the Companys common stock on the date of the grant, (b) have a term of ten years,
and (c) be on such other terms as shall be determined by the Board (or the Compensation Committee
of the Board) and set forth in a customary form of stock option agreement under the Plan evidencing
the Option.
5.3.
Expense Reimbursement
. Employer shall reimburse Employee for reasonable business
expenses incurred by Employee in connection with the performance of Employees duties in accordance
with Employers usual practices and policies in effect from
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Employment Agreement
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Robert E. Kennedy
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Page 2 of 7
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time to time. Any reimbursements hereunder shall be paid to Employee promptly in a lump sum in
accordance with such expense reimbursement policies and procedures then in effect.
5.4.
Vacation
. Employee will be entitled to four weeks of paid time off (vacation
days plus sick time/personal time) for each full calendar year in accordance with the Companys
policies from time to time in effect, in addition to holidays observed by the Company (for partial
calendar years, the Employees paid time off will be pro-rated). Paid time off may be taken at
such times and intervals as the Employee shall determine, subject to the business needs of the
Company, and otherwise shall be subject to the policies of the Company, as in effect from time to
time. The number of paid time off days will accrue per pay period and will stop accruing once 20
days have been reached.
5.5.
Employee Benefits
. The Company shall provide Employee and his dependents with
coverage under all medical, dental and/or vision plans and other benefit programs available to the
Companys executives and their dependents, to the extent Employee and his dependents satisfy the
applicable eligibility requirements, and the Company shall pay, directly or indirectly, the monthly
and annual premiums associated with any such medical plans to the same extent the Company pays such
premiums for other executives of the Company. Employee shall be eligible to participate in any
medical insurance and other employee benefits made available by Employer to all senior executives
and/or all of employees of Employer under Employers plans and employment policies in effect during
the Term. Employee acknowledges and agrees that, any such plans or policies now or hereafter in
effect may be modified or terminated by Employer at any time in its discretion.
5.6.
Payroll Taxes
. Employer shall have the right to deduct from the compensation and
benefits due to Employee hereunder any and all sums required for social security and withholding
taxes and for any other federal, state, or local tax or charge which may be in effect or hereafter
enacted or required as a charge on the compensation or benefits of Employee.
6.
Termination
. The Agreement and Employees employment may be terminated as set
forth in this Section 6.
6.1.
Termination by Employer for Cause; Termination by Employee
. Employer may
terminate Employees employment hereunder for Cause upon notice to Employee, and Employee may
terminate his employment hereunder, for any reason or no reason, upon notice to Employer.
Cause
for the purpose of this Agreement shall mean any of the following:
(a) Employees breach of any material term of this Agreement including its Exhibits;
provided that the first occasion of any particular breach shall not constitute Cause unless
Employee shall have previously received written notice from Employer stating the nature of
such breach and affording Employee at least ten (10) days to correct such breach;
(b) Employees conviction of, or plea of guilty or
nolo contendere
to, any felony or
other crime of moral turpitude;
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Employment Agreement
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Robert E. Kennedy
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Page 3 of 7
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(c) Employees act of fraud or dishonesty injurious to Employer or its reputation;
(d) Employees continual failure or refusal to perform his material duties as required
under the Agreement after written notice from Employer stating the nature of such failure or
refusal and affording Employee at least ten days to correct the same;
(e) Employees act or omission that, in the reasonable determination of Employers
Board (or a Committee of the Board), indicates alcohol or drug abuse by Employee; or
(f) Employees act or personal conduct that, in the judgment of the Board (or a
Committee of the Board), gives rise to a material risk of liability of Employee or Employer
under federal or applicable state law for discrimination, or sexual or other forms of
harassment, or other similar liabilities to subordinate employees.
Upon termination of Employees employment by Employer for Cause or by Employee for any reason,
all compensation and benefits to Employee hereunder shall cease except that Employee shall be
entitled to payment, not later than three days after the date of termination, of (i) any accrued
but unpaid salary and unused vacation time (only as accrued during the then-current year of
employment), and (ii) reimbursement of business expenses accrued but unpaid as of the date of
termination. In addition, Employers indemnification obligations shall remain in effect in
accordance with the terms thereof.
6.2.
Termination by Employer without Cause
. Employer may also terminate Employees
employment without Cause during the Term; provided, however, that (i) Employer shall remain
obligated to continue paying Employees Base Salary at the time of termination for the remainder of
the Term, and (ii) Employees Option shall continue to vest for the remainder of the Term. Upon
any termination pursuant to this paragraph, Employee shall, not later than three days after the
date of termination, be entitled to payment of any unused vacation time (only as accrued as of the
date of such termination and in accordance with applicable law) and reimbursement of business
expenses accrued but unpaid as of the date of termination.
7.
Equitable Remedies; Injunctive Relief
. Employee hereby acknowledges and agrees that
monetary damages are inadequate to fully compensate Employer for the damages that would result from
a breach or threatened breach of the Confidentiality Agreement and, accordingly, that Employer
shall be entitled to equitable remedies, including, without limitation, specific performance,
temporary restraining orders, and preliminary injunctions and permanent injunctions, to enforce
such Section without the necessity of proving actual damages in connection therewith. The
provision shall not, however, diminish Employers right to claim and recover damages or enforce any
other of its legal or equitable rights or defenses.
8.
Indemnification
. Employer and Employee acknowledge that, as the Vice President and
Chief Financial Officer of Employer, Employee shall be a corporate officer of Employer and, as
such, Employee shall be entitled to indemnification to the full extent mandated
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Employment Agreement
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Robert E. Kennedy
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Page 4 of 7
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by Employer to its officers, directors and agents under the Employers Certificate of Incorporation
and Bylaws as in effect as of the date of this Agreement.
9.
Severable Provisions
. The provisions of this Agreement are severable and if any
one or more provisions is determined to be illegal or otherwise unenforceable, in whole or in part,
the remaining provisions, and any partially unenforceable provisions to the extent enforceable,
shall nevertheless be binding and enforceable.
10.
Successors and Assigns
. This Agreement shall inure to the benefit of and shall be
binding upon and enforceable by Employer, its successors and assigns and Employee and his heirs and
representatives; provided, however, that neither party may assign the Agreement without the prior
written consent of the other party. Employer will cause any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or
assets of Employer to assume expressly and agree to perform this Agreement in the same manner and
to the same extent that Employer would have been required to perform it.
11.
Entire Agreement
. This Agreement, including the Confidentiality Agreement,
contains the entire agreement of the parties relating to the subject matter hereof, and the parties
hereto have made no agreements, representations or warranties relating to the subject matter of the
Agreement that are not set forth otherwise therein or herein. Except as expressly provided herein,
this Agreement (including the Confidentiality Agreement) supersedes any and all prior or
contemporaneous agreements, written or oral, between Employee and Employer relating to the subject
matter hereof. Any such prior or contemporaneous agreements, as well as that certain Employment
Agreement between Employee and Apthera, Inc. (
Apthera
) dated April 1, 2010, as amended on
July 1, 2010 (the
Prior Agreement
), are hereby terminated and of no further effect, and
Employee, by the execution hereof, agrees that any compensation provided for under any such
agreements is specifically superseded and replaced by the provisions of this Agreement (including
the Confidentiality Agreement). Employee acknowledges that all compensation and other obligations
owed to Employee by Apthera pursuant to the Prior Agreement have been fully and finally paid and
satisfied as of the Effective Date.
12.
Amendment
. No modification of this Agreement shall be valid unless made in
writing, approved by the Employers Board (or a committee of the Board) and signed by the parties
hereto and unless such writing is made by an executive officer of Employer (other than Employee).
The parties hereto agree that in no event shall an oral modification of this Agreement be
enforceable or valid.
13.
Governing Law; Arbitration
. This Agreement is and shall be governed and construed
in accordance with the laws of the State of Delaware without giving effect to the choice-of-law
rules of Delaware. Except to the extent a remedy is sought as described in Section 7, above, any
dispute arising out of, or relating to, this Agreement or the breach thereof, or regarding the
interpretation thereof, shall be exclusively decided by binding arbitration conducted in Los
Angeles, California in accordance with the rules of the American Arbitration Association (the
AAA) then in effect before a single arbitrator appointed in accordance with such rules. Judgment
upon any award rendered therein may be entered and enforcement
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Employment Agreement
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Robert E. Kennedy
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Page 5 of 7
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obtained thereon in any court having jurisdiction. Each of the parties agrees that service of
process in such arbitration proceedings shall be satisfactorily made upon it if sent by registered
mail addressed to it at the address referred to in Section 14 below. The costs of such arbitration
shall be borne proportionate to the finding of fault as determined by the arbitrator. Judgment on
the arbitration award may be entered by any court of competent jurisdiction.
14.
Notice
. All notices and other communications under this Agreement shall be in
writing and mailed, electronically mailed, telecopied (in case of notice to Employer only) or
delivered by hand or by a nationally recognized courier service guaranteeing overnight delivery to
a party at the following address (or to such other address as such party may have specified by
notice given to the other party pursuant to the provision):
If to Employer:
RXi Pharmaceuticals Corporation
60 Prescott St.
Worcester, MA 01605
Attention: Chief Executive Officer
Fax: (508) 767-3862
Email: mahn@rxipharma.com
If to Employee:
Through company e-mail or company regular mail box if employed by Company or if not employed:
Robert E. Kennedy
9450 E. Larkspur Drive
Scottsdale, AZ 85260
Email: rob@rekconsultingllc.com
15.
Survival
. Sections 7 through 16 shall survive the expiration or termination of
the Agreement.
16.
Counterparts
. The Agreement may be executed in counterparts, each of which shall
be deemed to be an original and all of which together shall be deemed to be one and the same
agreement.
17.
Joint Participation
. Employer and Employee agree and acknowledge that they have
jointly participated in the negotiation and drafting of this Agreement and that this Agreement has
been fully reviewed and negotiated by both Employer and Employee and their respective Counsel. In
the event of an ambiguity or question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by both Employer and Employee and no presumptions or burdens of
proof shall arise favoring either Employer or Employee by virtue of the authorship of any of the
provisions of this Agreement.
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Employment Agreement
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Robert E. Kennedy
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Page 6 of 7
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18.
Attorneys Fees
. In any action or proceeding to construe or enforce any provision
of the Agreement the prevailing party shall be entitled to recover its or his reasonable attorneys
fees and other costs of suit in addition to any other recoveries.
IN WITNESS WHEREOF, the Agreement is executed as of the day and year first above written.
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EMPLOYER
RXi Pharmaceuticals Corporation
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By:
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/s/
Mark J. Ahn
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Name:
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Mark J. Ahn, Ph.D.
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Its:
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President & Chief Executive Officer
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EMPLOYEE
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/s/ Robert E. Kennedy
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Robert E. Kennedy
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Employment Agreement
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Robert E. Kennedy
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Page 7 of 7
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Exhibit 1
RXi Pharmaceuticals Corporation
EMPLOYEE CONFIDENTIALITY, NON-COMPETITION, AND
PROPRIETARY INFORMATION AGREEMENT
AGREEMENT, effective as of April 13, 2011, between RXi Pharmaceuticals Corporation, a Delaware
corporation (the Company), and Robert E. Kennedy (the Employee).
1. Employee will make full and prompt disclosure to the Company of all inventions,
improvements, modifications, discoveries, methods, technologies, biological materials, and
developments, and all other materials, items, techniques, and ideas related directly or indirectly
to the business of the Company, whether patentable or not, made or conceived by Employee or under
Employees direction during Employees employment with the Company, whether or not made or
conceived during normal working hours, or on the premises of the Company (all of which are
collectively termed Intellectual Property hereinafter).
2. Employee agrees that all Intellectual Property, as defined above, shall be the sole
property of the Company and its assigns, and the Company and its assigns shall be the sole owner of
all patents and other rights in connection therewith. Employee hereby assigns to the Company any
rights Employee may have or acquire in all Intellectual Property and all related patents,
copyrights, trademarks, trade names, and other industrial and intellectual property rights and
applications therefore, in the United States and elsewhere. Employee further agrees that with
regard to all future developments of Intellectual Property, Employee will assist the Company in
every way that may be reasonably required by the Company (and at the Companys expense) to obtain
and, from time to time, enforce patents on Intellectual Property in any and all countries that the
Company may require, and to that end, Employee will execute all documents reasonably necessary for
use in applying for and obtaining such patents thereon and enforcing the same, as the Company may
desire, together with any assignment thereof to the Company or persons designated by the Company,
and Employee hereby appoints the Company as Employees attorney to execute and deliver any such
documents or assignments requested by the Company (but only for the purpose of executing and filing
any such document). Employees obligation to assist the Company in obtaining and enforcing patents
for Intellectual Property in any and all countries shall continue beyond the termination of
Employees employment with the Company, but the Company shall compensate Employee at a reasonable,
standard hourly rate following such termination for time directly spent by Employee at the
Companys request for such assistance.
3. Employee hereby represents that Employee has no continuing obligation to assign to any
former employer or any other person, corporation, institution, or firm any Intellectual Property as
described above. Employee represents that Employees performance of all the terms of this
Agreement and as an employee of the Company does not and will not breach any agreement to keep in
confidence proprietary information acquired by Employee, in confidence or in trust, prior to
Employees employment by the Company. Employee has not entered into, and Employee agrees not to
enter into, any agreement (either written or oral), which would put Employee in conflict with this
Agreement.
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Exhibit 1
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Robert E. Kennedy
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Page 1 of 6
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4. Employee agrees to assign to the Company any and all copyrights and reproduction rights to
any material prepared by Employee in connection with this Agreement and/or developed by Employee
during Employees employment with the Company that are related directly or indirectly to the
business of the Company.
5. Employee understands and agrees that a condition of Employees employment and continued
employment with the Company is that Employee has not brought and will not bring to the Company or
use in the performance of Employees duties at the Company any materials or documents rightfully
belonging to a former employer which are not generally available to the public.
6. Employee recognizes that the services to be performed by Employee hereunder are special,
unique, and extraordinary and that, by reason of Employees employment with the Company, Employee
may acquire Confidential Information (as hereinafter defined) concerning the operation of the
Company, the use or disclosure of which would cause the Company substantial loss and damage which
could not be readily calculated and for which no remedy at law would be adequate. Accordingly,
Employee agrees that Employee will not (directly or indirectly) at any time, whether during or for
a period of seven (7) years after Employees employment with the Company:
(i) knowingly use for personal benefit or for any other reason not authorized by the Company any
Confidential Information that Employee may acquire or has acquired by reason of Employees
employment with the Company, or;
(ii) disclose any such Confidential Information to any person or entity except (A) in the
performance of Employee obligations to the Company hereunder, (B) as required by a court of
competent jurisdiction, (C) in connection with the enforcement of Employee rights under this
Agreement, or (D) with the prior consent of the Board of Directors of the Company.
As used herein, Confidential Information includes proprietary and confidential information
with respect to the facilities and methods of the Company, reagents, chemical compounds, cell lines
or subcellular constituents, organisms, or other biological materials, trade secrets, and other
Intellectual Property, systems, patent applications, procedures, manuals, confidential reports,
financial information, business plans, prospects, or opportunities, personnel information, or lists
of customers and suppliers which are generally known only to the Company provided, however, that
Confidential Information shall not include any information that is known or becomes generally known
or available publicly other than as a result of disclosure by Employee which is not permitted as
described in clause (ii) above, or the Company discloses same to others without obtaining an
agreement of confidentiality.
Employee confirms that all Confidential Information is the exclusive property of the Company.
All business records, papers, documents and electronic materials kept or made by Employee relating
to the business of the Company which comprise Confidential Information shall be and remain the
property of the Company during the Employees employment and at all times thereafter. Upon the
termination, for any reason, of Employees employment with the Company, or upon the request of the
Company at any time, Employee shall deliver to the
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Exhibit 1
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Robert E. Kennedy
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Page 2 of 6
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Company, and shall retain no copies of any written or electronic materials, records and documents
made by Employee or coming into Employees possession concerning the business or affairs of the
Company and which comprise Confidential Information.
7. During the term of Employees employment with the Company and for one (1) year thereafter
(the Restricted Period), the Employee shall not directly or indirectly, for Employees own
account or for the account of others, as an officer, director, stockholder (other than as the
holder of less than 1% of the outstanding stock of any publicly traded company), owner, partner,
employee, promoter, consultant, manager or otherwise participate in the promotion, financing,
ownership, operation, or management of, or assist in or carry on through proprietorship, a
corporation, partnership, or other form of business entity which is in competition with the Company
in the field of the development of pharmaceutical products or product candidates for the treatment
of HER2-positive cancer (the Company Business) within the United States or any other country in
which the Company is conducting or is actively seeking or planning to conduct the Company Business
as of the date of such termination. Notwithstanding the foregoing, except as otherwise agreed to in
writing, Employee shall have the right to perform such incidental services as are necessary in
connection with (a) his private passive investments, (b) his charitable or community activities,(c)
his participation in trade or professional organizations, and (d) his service on the board of
directors (or comparable body) of one third-party corporate entity that does not compete with the
Company Business.
During the Restricted Period, the Employee shall not, whether for Employees own account or
for the account of any other person (excluding the Company):
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(i)
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solicit or contact in an effort to do business with any person who was or is a
customer of the Company during the Restricted Period, or any affiliate of any such
person, if such solicitation or contact is for the purpose of competition with the
Company; or
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(ii)
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solicit or induce any of the Companys employees to leave their employment with
the Company or accept employment with anyone else, or hire any such employees or
persons who were employed by the Company during the Restricted Period.
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Nothing herein shall prohibit or preclude the Employee from performing any other types of
services that are not precluded by this Section 7 for any other person.
Employee has carefully read and considered the provisions of this Section 7 (including the
Restricted Period, scope of activity to be restrained, and the restrictions geographical scope)
and concluded them to be fair, appropriate and reasonably required for the protection of the
legitimate business interests of the Company, its officers, directors, employees, creditors, and
shareholders. Employee understands that the restrictions contained in this Section may limit
Employees ability to engage in a business competitive to the Companys business, but acknowledges
that Employee will receive adequate remuneration and other benefits from the Company hereunder to
justify such restrictions.
The Employee shall give prompt notice to the Company of the Employees acceptance of
employment or other fees for services relationship during the Restricted Period, which notice
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Exhibit 1
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Robert E. Kennedy
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Page 3 of 6
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shall include the name of, the business of, and the position that Employee shall hold with
such other entity.
8. In the event that Employees employment is transferred by the Company to a subsidiary,
affiliated company, or acquiring company (as the case may be), Employees employment by such
company will, for the purpose of this Confidentiality, Non-Competition, and Proprietary Information
Agreement, be considered as continued employment with the Company, unless Employee executes an
agreement, substantially similar in substance to this Agreement, and until the effective date of
said agreement in any such company for which Employee becomes employed. It is further agreed that
changes in Employees position or title unless expressly agreed to in writing will operate to
terminate this Confidentiality, Non-Competition, and Proprietary Information Agreement without
Cause.
9. Upon termination of Employees employment for any reason, unless such employment is
transferred to a subsidiary, affiliated or acquiring company of the Company, Employee agrees to
leave with, or return to, the Company all records, drawings, notebooks, and other documents
pertaining to the Companys Confidential Information, whether prepared by Employee or others, as
well as any equipment, tools or other devices owned by the Company, that are then in Employees
possession, however such items were obtained, and Employee agrees not to reproduce or otherwise
retain any document or data relating thereto.
10. Employee obligations under this Agreement shall survive the termination of Employees
employment with the Company for the respective periods specifically set forth herein regardless of
the manner of, and reason for, such termination, and shall be binding upon Employees heirs,
executors, and administrators.
11. Employee understands and agrees that no license to any of the Companys trademarks,
patents, copyrights or other proprietary rights is either granted or implied by Employees access
to and utilization of the Confidential Information or Intellectual Property.
12. No delay or omission by the Company in exercising any right under this Agreement will
operate as a waiver of that or any other right. A waiver or consent given by the Company on any
one occasion is effective only in that instance and will not be construed as a bar to or waiver of
any right on any other occasion.
13. Employee agrees that in addition to any other rights and remedies available to the Company
for any breach or threatened breach by Employee of Employees obligations hereunder, the Company
shall be entitled to enforcement of Employees obligations hereunder by whatever means are at the
Companys disposal, including court injunction.
14. The Company may assign this Agreement to any other corporation or entity which acquires
(whether by purchase, merger, consolidation or otherwise) all or substantially all of the business
and/or assets of the Company. Employee shall have no rights of assignment.
15. If any provision of this Agreement shall be declared invalid, illegal, or unenforceable,
then such provision shall be enforceable to the extent that a court deems it reasonable to enforce
such provision. If such provision shall be unreasonable to enforce to any
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Exhibit 1
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Robert E. Kennedy
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Page 4 of 6
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extent, such provision shall be severed and all remaining provisions shall continue in full
force and effect.
16. This Agreement shall be effective as of the date first written above.
17. This Agreement shall be governed in all respects by the laws of the State of Delaware,
without regard to principles of conflicts of law.
[Signature Page Follows]
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Exhibit 1
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Robert E. Kennedy
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Page 5 of 6
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IN WITNESS WHEREOF
, Employee has executed this Agreement as of the date set forth above:
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BY:
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/S/
Robert E. Kennedy
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Name of Employee: Robert E. Kennedy
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ACCEPTED AND AGREED TO:
RXi Pharmaceuticals Corporation
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BY:
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/s/
Mark J. Ahn, Ph.D.
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Name:
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Mark J. Ahn, Ph.D.
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Title:
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President & Chief Executive Officer
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Exhibit 1
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Robert E. Kennedy
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Page 6 of 6
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Exhibit 10.10
RXI PHARMACEUTICALS CORPORATION
SCIENTIFIC ADVISORY AGREEMENT
This Scientific Advisory Agreement (the Agreement) dated as of April 13, 2011, is made by Dr.
George E. Peoples (the Advisor) and RXi Pharmaceuticals Corporation, a Delaware corporation
(RXi and together with the Advisor, the Parties).
AGREEMENT
1. Services.
As of the Effective Date, RXi shall retain the Advisor, and the Advisor agrees to
serve, as a scientific advisor to RXi and to consult with RXi in the Field (as hereinafter
defined). The Advisor agrees to provide to RXi such services in the Field as are customarily
performed by a scientific advisor to a company such as RXi (the Services). The Advisor is being
engaged by RXi as a consultant for the exchange of ideas only and shall not direct or conduct
research for or on behalf of RXi. The Services will include, without limitation:
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Consulting with RXis management within the Advisors professional area of
expertise from time to time as reasonably requested by RXi;
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Exchanging strategic and business development ideas with RXi;
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Chairing the Scientific Advisory Board (SAB); and
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Attending scientific, medical, regulatory or business meetings with RXis
management, such as United States Food & Drug Administration meetings, meetings
with strategic or potential strategic partners and other meetings relevant to the
Advisors area of expertise.
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For purposes of this Agreement, the term Field means the development of pharmaceutical products
or product candidates for the treatment of HER2-positive cancer, or may directly compete with
NeuVax. The Advisor is agreeing to provide the Services under this Agreement in consideration of
the compensation provided in Section 3 hereof. During the Term of this Agreement, without the
prior written consent of RXi, the Advisor will not be employed by or otherwise render services to
another company engaged in the Field.
2. Performance of Services.
As of the Effective Date, the Advisor agrees to make himself available
to render the Services, at such time or times and location or locations as may be mutually agreed,
from time to time at the request of RXi. The Advisor agrees not to perform any Services for RXi on
the premises of his current employer, US Army (which is referred to as the Principal
Institution), any academic institution or any hospital with which he is or may become affiliated
(each such Principal Institution, academic institution and hospital an Affiliated Institution) or
with the respective facilities or funds of any such Affiliated Institution which could result in
claims by such Affiliated Institution of rights in any Inventions (as defined in Section 7 hereof
), without the express prior agreement of RXi and the Affiliated Institution, as appropriate.
Unless covered by an appropriate agreement between any third party (other than an Affiliated
Institution) and RXi, the Advisor shall not knowingly engage in any activities or use any
facilities in the course of providing Services which could result in claims of ownership to any
Inventions being made by such third party. The Advisor agrees to devote his reasonable and
diligent efforts to the performance of the Services.
3. Compensation.
RXi will compensate the Advisor for providing the Services to RXi as follows,
with such compensation to be the full consideration for the Services:
(A) Cash Compensation.
The Advisor will receive an up-front $50,000 retainer fee and a
monthly consulting fee of $15,000 during the Term, payable on the last day of each calendar month
and pro rated for each partial month of engagement hereunder.
(B)
Stock Option
. On the Effective Date, the Company shall grant the Advisor a stock
option (
Option
) under the Companys Amended and Restated 2007 Incentive Plan (the
Plan
) to purchase One Hundred Thousand (100,000) shares of the Companys common stock.
The Option shall vest in equal quarterly installments over 3 years beginning on the first quarterly
anniversary of the Effective Date, provided, in each case, that the Advisor remains in the
continuous engagement of the Company through such quarterly anniversary date. The Option shall (a)
be exercisable at an exercise price per share equal to the closing market price of the Companys
common stock on the date of the grant, (b) have a term of ten years, and (c) be on such other terms
as shall be determined by the Board (or the Compensation Committee of the Board) and set forth in a
customary form of stock option agreement under the Plan evidencing the Option.
(C) Expenses.
RXi shall promptly reimburse the Advisor for reasonable out-of-pocket expenses,
including, without limitation, travel expenses incurred by him in the performance of the Services,
following RXis receipt of a request for reimbursement from the Advisor. The Advisor shall provide
RXi with documentation supporting all such expenses within 30 days of incurring the expense.
4. Principal Institution.
RXi recognizes that the activities of the Advisor are or will be subject
to the rules and regulations of the Principal Institution and any other Affiliated Institution, now
or in the future, and RXi agrees that the Advisor shall be under no obligation to perform Services
if such performance would conflict with such rules and regulations, or constitute a conflict of
interest under the relevant policies of the Affiliated Institution. The Advisor has no reason to
believe that the Advisors performance of any of the services contemplated by this Agreement will
conflict with the applicable rules or policies of any Affiliated Institution, each as presently in
effect. In the event such rules and regulations shall, in RXis reasonable opinion or the
reasonable opinion of the Advisor, substantially interfere with the performance of Services by the
Advisor, RXi or the Advisor may, notwithstanding anything herein to the contrary, terminate this
Agreement without liability to the other party upon 30 days notice. The Advisor shall provide
copies to RXi of all status reports he delivers and other material correspondences he has with any
Affiliated Institution concerning this Agreement or the Services within three (3) business days of
his delivery or receipt of such report or correspondence, provided that the policies of any
Affiliated Institution permit him to do so, and provided further that RXi agrees to hold any such
report or correspondence in confidence.
5. Term; Termination; Effect of Termination.
(A) Term; Termination.
The Advisors performance of Services shall commence on the Effective
Date and shall continue until terminated pursuant to the terms of this Agreement (the Term).
Either party may terminate this Agreement by providing 30 days written notice to the other party.
In addition, RXi may terminate this Agreement (in addition to any other available
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remedy) at any time for Cause. The term Cause shall mean the Advisors material breach of
this Agreement which goes uncured for more than 15 days following written notice from RXi, the
Advisors conviction of or plea of no contest to any felony, or the Advisors act or failure to act
that materially and adversely affects the business or reputation of RXi.
(B) Effect of Termination.
Upon termination of this Agreement, the Advisor shall be entitled
to payment, not later than three (3) business days after the date of termination, of (i) any
accrued but unpaid portion of his monthly consulting fee, prorated for any partial month of service
prior to the date of termination, and (ii) reimbursement of out-of-pocket expenses accrued but
unpaid as of the date of termination.
(C) Survival of Certain Provisions.
No termination of this Agreement shall relieve the
Advisor or RXi of any obligations hereunder which by their terms are intended to survive the
termination of the Advisors association with RXi, including, but not limited to, the obligations
of Sections 3 (as to only those provisions that are specifically described as being applicable
after the Term), 7 through 11, 14, 17, 18, and 21 through 23 hereof.
(D) Return of RXi Property.
Upon termination of this Agreement for any reason, the Advisor
shall promptly deliver to RXi any and all property of RXi or their customers, licensees, licensors,
or affiliates provided to the Advisor pursuant to this Agreement which may be in his possession or
control, including without limitation, products, memoranda, notes, diskettes, records, reports,
laboratory notebooks, or other documents or photocopies of the same and shall destroy any
Confidential Information (as defined in Section 8 hereof ) in tangible form.
6. Independent Contractor.
For purposes of this Agreement and all Services to be provided
hereunder, Advisor shall not be considered a partner, co-venturer, agent, employee or
representative of Company, but shall remain in all respects an independent contractor, and neither
party shall have any right or authority to make or undertake any promise, warranty or
representation, to execute any contract, or otherwise to assume any obligation or responsibility in
the name of or on behalf of the other party. Without limiting the generality of the foregoing,
Advisor shall not be considered an employee of Company for purposes of any state or federal laws
relating to unemployment insurance, social security, workers compensation or any regulations which
may impute an obligation or liability to Company by reason of an employment relationship. Advisor
agrees to pay all income, FICA, and other taxes or levies imposed by any governmental authority on
any compensation that Advisor receives under this Agreement. Advisor shall indemnify, defend and
hold harmless Company and its officers and employees from and against any and all losses, damages,
liabilities, obligations, judgments, penalties, fines, awards, costs, expenses and disbursements
(including without limitation, the costs, expenses and disbursements, as and when incurred, of
investigating, preparing or defending any claim, action, suit, proceeding or investigation)
suffered or incurred by Company as a result of any allegation that Advisor is an employee of
Company by virtue of performing any work for or on behalf of Company hereunder or otherwise.
7. Inventions.
The Advisor shall promptly disclose to RXi, and, subject to the terms of the third
paragraph of this Section 7, hereby assigns and agrees to assign to RXi (or as otherwise directed
by RXi), his full right, title and interest, if any, to all Inventions (as defined below). The
Advisor agrees to cooperate fully with RXi, its attorneys and agents, in the preparation and filing
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of all papers and other documents as may be required to perfect RXi s rights in and to any of such
Inventions, including, but not limited to, execution of any and all applications for domestic and
foreign patents, copyrights or other proprietary rights and the performance of such other acts
(including, among others, the execution and delivery of instruments of further assurance or
confirmation) requested by RXi to assign the Inventions to RXi and to permit RXi to file, obtain
and enforce any patents, copyrights or other proprietary rights in the Inventions, all at RXis
sole cost and expense. The Advisor hereby designates RXi as his agent, and grants to RXi a power
of attorney with full power of substitution, which power of attorney shall be deemed coupled with
an interest, for the purpose of effecting any such assignment hereunder from the Advisor to RXi in
the event the Advisor should fail or refuse to sign and deliver any document in connection with
perfecting the foregoing rights of RXi within 10 days following RXis request; provided that, in
each case in which RXi intends to exercise this right (i) it shall give the Advisor 30 days written
notice, by certified mail that they intend to exercise their rights under this sentence, which
notice shall refer to this Agreement and shall be accompanied by (a) copies of the documents that
RXi intends to execute or file, or a description of the other acts that Companies intend to take,
and (b) reasonably sufficient information about the Invention or other intellectual property to
which the documents or acts relate for the Advisor to make a determination of whether the document
or acts relate to an Invention; and (ii) RXi may not exercise its rights under this sentence if the
Advisor notifies RXi within the 30-day period referred to above that the Advisor disagrees.
Inventions shall mean, for purposes of this Section 7, ideas, discoveries, creations,
manuscripts and properties, innovations, improvements, know-how, inventions, trade secrets,
apparatus, developments, techniques, methods, biological processes, cell lines, laboratory
notebooks and formulas (whether or not patentable or copyrightable or constituting trade secrets)
conceived, made or discovered by the Advisor (whether alone or with others) within the Field (i)
solely as a direct result of consulting with RXi under this Agreement and (ii) not in the course of
the Advisors activities as an employee of Principal Institution. In no event shall the Advisors
obligations hereunder relate to any right, title or interest that the Advisor may have in ideas,
discoveries, creations, manuscripts and properties, innovations, improvements, know-how,
inventions, trade secrets, apparatus, developments, techniques, methods, biological processes, cell
lines, laboratory notebooks and formulas (whether or not patentable or copyrightable or
constituting trade secrets) conceived, made or discovered by the Advisor (whether alone or with
others) with the use of facilities or findings of any Affiliated Institution and that the Advisor
is required to assign to his Affiliated Institution pursuant to the rules and regulations of such
Affiliated Institution. Further, RXi will have no rights by reason of this Agreement in any
publication, invention, discovery, improvement, or other intellectual property whatsoever, whether
or not publishable, patentable, or copyrightable, which is developed as a result of a program of
research financed, in whole or in part, by funds provided by or under the control of the Principal
Institution. The Advisor agrees to not knowingly use or incorporate any third party proprietary
information into any Inventions or to disclose such information to RXi. Upon termination of this
Agreement with RXi, the Advisor shall provide to RXi in writing a full, signed statement of all
Inventions in which the Advisor participated prior to termination of this Agreement.
RXi acknowledges and agrees that it will enjoy no priority or advantage as a result of the
consultancy created by this Agreement in gaining access, whether by license or otherwise, to any
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proprietary information or intellectual property that arises from any research undertaken by
the Advisor in his capacity at the Principal Institution.
8. Confidentiality.
The Advisor may disclose to RXi any information that the Advisor would
normally freely disclose to other members of the scientific community at large, whether by
publication, by presentation at seminars, or in informal scientific discussions. However, the
Advisor shall not disclose to RXi information that is proprietary to Principal Institution and is
not generally available to the public other than through formal technology transfer procedures.
During the Term, the Advisor will be exposed to certain information concerning RXis research,
business, Inventions, products, proposed new products, designs, clinical testing programs,
manufacturing processes and techniques, customers, and other information and materials that embody
trade secrets or technical or business information that is confidential and proprietary to RXi and
is not generally known to the public (collectively, Confidential Information). Confidential
Information shall not include information that (i) is in the public domain on the Effective Date of
this Agreement, (ii) is or was disclosed to the Advisor by a third party having no fiduciary
relationship with RXi and having no known obligation of confidentiality with respect to such
information, (iii) is or was independently known or developed by the Advisor without reference to
the Confidential Information as reasonably demonstrated by the Advisor by written records or (iv)
is required by law or in a legal proceeding to be disclosed, provided that the Advisor shall give
RXi prior written notice of such proposed disclosure so that RXi may take such legal steps as they
deem appropriate to protect the Confidential Information. In addition, Confidential Information
does not include information generated by the Advisor, alone or with others, unless the information
(i) is generated solely as a direct result of the performance of the Services and (ii) is not
generated in the course of the Advisors activities as an employee of Principal Institution. The
Advisor hereby agrees, for a period of seven (7) years following the expiration or earlier
termination of this Agreement not to disclose or make use of, or allow others to use, any
Confidential Information, except to RXis employees and representatives, without RXis prior
written consent, unless such information becomes publicly available through no fault of the
Advisor. In addition, the Advisor further agrees not to make any notes or memoranda relating to
the business of RXi other than for the benefit of RXi and not to use or permit to be used at any
time any such notes or memoranda other than for the benefit of RXi.
9. Injunctive Relief.
The Advisor agrees that any breach of this Agreement by him could cause
irreparable damage to RXi and that in the event of such breach RXi shall have the right to obtain
injunctive relief, including, without limitation, specific performance or other equitable relief to
prevent the violation of his obligations hereunder. It is expressly understood and agreed that
nothing herein contained shall be construed as prohibiting RXi from pursuing any other remedies
available for such breach or threatened breach, including, without limitation, the recovery of
damages by RXi.
10. No Assignment by the Advisor.
The Services to be rendered by the Advisor are personal in
nature. The Advisor may not assign or transfer this Agreement or any of his rights or obligations
hereunder. In no event shall the Advisor assign or delegate responsibility for actual performance
of the Services to any other natural person.
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11. Publications.
The Advisor agrees that he will not at any time during the time limitations set
forth in paragraph 9 hereof, publish any Confidential Information that becomes known to him as a
result of his relationship with RXi which is, or pursuant to the terms hereof becomes, the property
of RXi or any of its clients, customers, consultants, licensors, licensees, or affiliates except
to such extent as may be necessary in the ordinary course of performing in good faith his duties as
scientific advisor of RXi and with the prior written consent of RXi.
During the Term and for a period of two years thereafter, the Advisor agrees to submit to RXi
for a period of at least 30 days (the Review Period) a copy of any proposed manuscript or other
materials to be published or otherwise publicly disclosed by the Advisor (each a Proposed
Publication) which contains Confidential Information or discloses Inventions in sufficient time to
enable RXi to determine if patentable Inventions or Confidential Information would be disclosed.
Nothing herein shall be construed to restrict the Advisors right to publish material which does
not contain Confidential Information. Following the expiration of the Review Period, if RXi does
not notify the Advisor that the Proposed Publication discloses patentable Inventions or
Confidential Information such Proposed Publication shall be deemed to be approved by RXi for
publication. In addition, the Advisor will cooperate with RXi in this respect and will delete from
the manuscript or other disclosure any Confidential Information if requested by RXi and will assist
RXi in filing for patent protection for any patentable Inventions prior to publication or other
disclosure.
12. No Conflicting Agreements.
The Advisor represents and warrants, that as of the Effective Date,
he will not be a party to any future commitments or obligations that conflict with this Agreement.
In this regard, as a condition to the effectiveness of this Agreement the Advisor shall provide to
RXi the written consent and acknowledgement of Principal Institution to Advisors entry into this
Agreement. During the Term, the Advisor will not enter into any agreement either written or oral
in conflict with this Agreement and will arrange to provide Services under this Agreement in such a
manner and at times that such Services will not conflict with his responsibilities under any other
agreement, arrangement or understanding or pursuant to any employment relationship he has at any
time with any third party. In the event of any inconsistency between this Agreement and any
agreement or policy of any Affiliated Institution, the agreement or policy of the Affiliated
Institution shall control.
13. Other Consulting Services.
RXi agrees that the Advisor may serve as a member of scientific
advisory boards or in a similar capacity with, and provide consulting services to, other companies
in scientific areas outside of the Field, provided that such service does not conflict or
materially interfere with his Services hereunder.
14. Nonsolicitation.
During the Term and for a period of one year thereafter, the Advisor,
personally, will not, without RXis prior written consent, directly solicit the employment of any
employee of RXi or its affiliates with whom the Advisor has had contact in connection with the
relationship arising under this Agreement. Nothing in this Section 14 shall be deemed to prohibit
general solicitations of employment by any Affiliated Institution.
15. Disclosure of Relationship.
The parties each shall be entitled to disclose that the Advisor is
serving as a scientific advisor to RXi and RXi may use the Advisors name, including in any
business plan, press release, advertisement, prospectus or other offering document of RXi or its
affiliates, so long as any such usage (a) is limited to reporting factual events or occurrences
only,
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and (b) is made in a manner that could not reasonably constitute a specific endorsement by the
Advisor of RXi or of any program, product or service of RXi. However, RXi shall not use the
Advisors name in any press release, or quote the Advisor in any RXi materials (including
advertisements), or otherwise use the Advisors name in a manner not specifically permitted by the
preceding sentence, unless in each case RXi obtains in advance the Advisors consent. The
foregoing consents shall not be unreasonably withheld or delayed by the Advisor. Notwithstanding
the foregoing, if, in the opinion of RXis counsel, RXi is required by applicable law to use the
Advisors name in a press release or governmental filing and, under the circumstances, RXi is not
reasonably able to obtain the advance written consent of the Advisor, as applicable, to such use,
then RXi may proceed without obtaining the advance written consent of the Advisor.
16. Notices.
All notices and other communications hereunder shall be delivered or sent by
facsimile transmission, recognized courier service, registered or certified mail, return receipt
requested.
If to RXi:
RXi Pharmaceuticals Corporation
60 Prescott Street
Worcester, MA 01605
Attn: Chief Executive Officer
Facsimile: 508-767-3862
If to the Advisor:
George Peoples, M.D.
120 Geneseo Road
San Antonio, TX 78209
210-824-0617
Such notice or communication shall be deemed to have been given as of the date sent by the
facsimile or delivered to a recognized courier service, or three days following the date sent by
registered or certified mail.
17. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective legal representatives, successors and permitted assigns. The Advisor
agrees that RXi may assign this Agreement, in whole but not in part, to any purchaser of all or
substantially all of its assets or to any successor corporation resulting from any merger,
consolidation or other reorganization of RXi with or into such corporations. RXi also may assign
this Agreement, in whole but not in part, to any person or entity controlled by, in control of, or
under common control with, RXi, if it obtains the prior written consent of the Advisor, which
consent shall not unreasonably be withheld or delayed; provided, however, that no such assignment
shall relieve RXi of its liability to the Advisor hereunder. RXi may not otherwise assign this
Agreement without the Advisors prior written consent.
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18. Indemnification.
RXi shall indemnify, defend and hold harmless the Advisor from any claim,
loss, liability or expense (including reasonable attorneys fees) incurred by him as a result of
the performance of his Services hereunder in accordance with the terms hereof, a material breach by
RXi hereof or any gross negligence or willful misconduct by RXi or its respective officers or
directors in connection with this Agreement or otherwise relating to or resulting from the
performance of the Services hereunder, except where such claim, loss, liability or expense is
attributable primarily to the Advisors own gross negligence or willful misconduct.
19. Entire Agreement; Counterparts.
This Agreement constitutes the entire agreement among the
parties as to the subject matter hereof. No provision of this Agreement shall be waived, altered
or cancelled except in writing signed by the party against whom such waiver, alteration or
cancellation is asserted. This Agreement may be executed in one or more counterparts, and by
different parties hereto on separate counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
20. Governing Law.
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of Delaware, without regard to conflict of law principles.
21. Enforceability.
The invalidity or unenforceability of any provision hereof as to an obligation
of a party shall in no way affect the validity or enforceability of any other provision of this
Agreement, provided that if such invalidity or unenforceability materially adversely affects the
benefits the other party reasonably expected to receive hereunder, that party shall have the right
to terminate this Agreement. Moreover, if one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as to scope, activity or subject so
as to be unenforceable at law, such provision or provisions shall be construed by limiting or
reducing it or them, so as to be enforceable to the extent compatible with the applicable law as it
shall then appear.
22. Construction.
This Agreement has been prepared jointly and shall not be strictly construed
against any party.
23. Resolution of Disputes
. Except as set forth below, any dispute arising under or in connection
with any matter related to this Agreement or any related agreement shall be resolved exclusively by
arbitration. The arbitration will be in conformity with and subject to the applicable rules and
procedures of the American Arbitration Association. All parties agree to be (i) subject to the
jurisdiction and venue of any arbitration or litigation in Delaware; and (ii) bound by the decision
of the arbitrator as the final decision with respect to any dispute that is to be resolved by
arbitration pursuant to this Agreement.
24. Advice of Counsel
. Each party acknowledges that, in executing this Agreement, such party has
had the opportunity to seek the advice of independent legal counsel, and has read and understood
all of the terms and provisions of this Agreement.
-8-
IN WITNESS WHEREOF, the parties hereto have duly executed this Scientific Advisory Agreement
as a sealed instrument as of the date first written above.
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RXi Pharmaceuticals Corporation
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By:
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/s/ Mark J. Ahn
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Name:
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Mark J. Ahn, Ph.D.
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Its:
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President & Chief Executive Officer
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Advisor:
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/s/ George E. Peoples
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George E. Peoples, M.D.
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-9-
Exhibit 10.12
Text Marked By [* * *] Has Been Omitted Pursuant To A Request For Confidential
Treatment And Was Filed Separately With The Securities And Exchange Commission.
EXCLUSIVE LICENSE AGREEMENT
BETWEEN
THE HENRY M. JACKSON FOUNDATION FOR THE
ADVANCEMENT OF MILITARY MEDICINE, INC.
AND
RXI PHARMACEUTICALS CORPORATION
THIS EXCLUSIVE LICENSE AGREEMENT (Agreement) is entered into as of the date of the last
signature on the signature page of this document (the Effective Date), by and among The Henry M.
Jackson Foundation for the Advancement of Military Medicine, Inc., a tax-exempt corporation
organized under the laws of the State of Maryland and having its principal offices at 1401
Rockville Pike, Suite 600, Rockville, Maryland 20852 (the Foundation) and RXi Pharmaceuticals
Corporation (RXi), a corporation organized under the laws of the State of Delaware and having its
principal offices at 60 Prescott Street, Worcester, MA 01605 and its wholly-owned subsidiary,
Apthera, Inc. (Apthera). This Agreement grants a license that can be exploited by either or both
of RXi and Apthera, and RXi and Apthera are referred to both individually and collectively
throughout as Licensee but any termination of this Agreement with respect to either of RXi or
Apthera shall terminate this Agreement as to both RXi and Apthera. The Foundation and Licensee
sometimes are referred to collectively herein as the Parties or individually as a Party.
WHEREAS the Foundation and the Uniformed Services University of the Health Sciences, an
institution of higher learning within the Department of Defense, an agency of the United States
Government, located at 4301 Jones Bridge Road, Bethesda, Maryland 20814 (USU) have agreed to
collaborate in the development and commercialization of inventions, patents, trade secrets, and
other intellectual property rights; and
WHEREAS, the Foundation and USU are committed to the policy that ideas or creative works
produced at the Foundation and USU should be used for the greatest possible public benefit and that
every reasonable incentive should be provided for the prompt introduction of such ideas into public
use, all in a manner consistent with the public interest; and
WHEREAS the Foundation, by virtue of assignments from USU (which received assignment(s) from
USU inventor(s)), is an owner of certain Patent Rights (as hereinafter defined) and has the right
to grant licenses of said Patent Rights, subject only to a royalty-free, nonexclusive license
heretofore granted to or retained by the United States Government; and
RXi Foundation License Optimized E75 (Peoples)
WHEREAS Licensee has represented to Foundation, to induce Foundation to enter into this
Agreement, that Licensee is experienced in the development, production, manufacture, marketing, and
sale of products similar to the Licensed Products and the use of processes similar to the Licensed
Processes (both as hereinafter defined) and is willing to undertake as provided in this Agreement a
thorough, vigorous, and diligent program of exploiting the Patent Rights so that public utilization
may result therefrom; and
WHEREAS Licensee desires to obtain from the Foundation, and the Foundation agrees to grant to
Licensee, a license upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth in this
Agreement, the Parties, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following meanings:
1.1 Affiliate means, with respect to any Person, any other Person that directly or
indirectly through one or more intermediaries controls, is controlled by, or is under common
control with such Person. For purposes of this definition, the term controls (including its
correlative meanings controlled by and under common control with) means the possession,
directly or indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by contract, or
otherwise.
1.2 Agreement means this Agreement, including all Appendices hereto, as the same may be
amended from time to time in accordance with the terms hereof.
1.3 Business Day means any day other than a Saturday, a Sunday, or a day on which banking
institutions in Montgomery County, Maryland are closed.
1.4 Confidential Information means information, disclosed by one Party to the other Party,
that is treated as proprietary or confidential by the disclosing Party and, at the time of
disclosure, that is marked proprietary or confidential or that bears a marking or legend of
like import restricting its use, copying, or dissemination or that is identified as being
confidential in a letter or other written communication sent to the receiving Party prior to or
contemporaneously with disclosure to the receiving Party. Any such information that is in another
form when disclosed, such as oral or visual, shall be treated as Confidential Information only if
and to the extent the disclosing Party informs the receiving Party of the proprietary or
confidential nature of the information prior to or at the time of the disclosure, and thereafter
creates a written record of the disclosure (marked in accordance with this Agreement) and delivers
the written record to
the receiving Party promptly, but in no event more than thirty (30) days after the original
disclosure to the receiving Party. Confidential Information does not include any
RXi Foundation License Optimized E75 (Peoples)
2
information that
(i) was known to the receiving Party without a duty of confidentiality before receipt from the
disclosing Party as evidenced by written records made prior to such receipt or disclosure (when
such prior knowledge did not become known to such receiving Party through disclosure by a third
party known to the receiving Party to be subject to an obligation to maintain the confidentiality
thereof); (ii) is or becomes a matter of public knowledge through no fault of the receiving Party
or any of its agents; (iii) is rightfully received by the receiving Party from a third party
without a duty of confidentiality; or (iv) is independently developed by the receiving Party as
evidenced by written records of the receiving Party.
1.5 Field means (a) with respect to Patent 1, the field of human therapeutics, biomarkers,
and diagnostics, and (b) with respect to Patent 2, use of the HER family peptide E75 in combination
with Herceptin
®
and only in the field of human therapeutics, biomarkers, and diagnostics
(no licensed use is granted in connection with any other peptides). Patent 1 and Patent 2 are
defined in Appendix A.
1.6 The term License has the meaning set forth in Section 2.1.
1.7 Licensed Process means any process that: (a) is covered in whole or in part by an
unexpired issued or pending claim contained in the Patent Rights, or (b) utilizes any Technology
Rights.
1.8 Licensed Product means any product or part thereof that: (a) is covered in whole or in
part by an unexpired issued or pending claim contained in the Patent Rights, or (b) is manufactured
by using or is employed to practice a Licensed Process or Technology Rights.
1.9 Marketing Approval means the approval or authorization required for the marketing of
Licensed Product or Licensed Process in the United States, the European Union, or other country
within the Territory, such as the issuance of an approval action by the United States Food and Drug
Administration (FDA) on an NDA in the United States, or the issuance of its equivalent by the
European Medicines Agency in the European Union.
1.10 MDACC means The University of Texas M. D. Anderson Cancer Center.
1.11 NDA means a New Drug Application or Biologics License Application filed with the FDA
for Marketing Approval of a Licensed Product or Licensed Process, or an equivalent application
filed with any equivalent agency or governmental authority outside the United States.
1.12 Net Sales means the gross revenues received by Licensee or any sublicensee(s) or
Affiliate(s) from sales, leases, or other transfers of Licensed Products or Licensed Processes,
less the sum of the following: sales discounts actually granted and taken; sales or use taxes
actually paid; import or export duties actually paid; outbound
transportation expenses actually prepaid or actually allowed; and amounts actually allowed or
credited due to returns (not exceeding the original billing or invoice amount),
RXi Foundation License Optimized E75 (Peoples)
3
all as recorded by
Licensee in Licensees official books and records in accordance with generally accepted accounting
practices and consistent with Licensees financial statements and regulatory filings with the
United States Securities and Exchange Commission, if any. No deductions shall be made for
commissions paid to individuals, whether they be with independent sales agencies or regularly
employed by and on the payroll of Licensee or sublicensees, or for the cost of collections.
1.13 Non-commercial Research Purposes means use of Patent Rights for academic research or
other not-for-profit scholarly purposes that are undertaken at a non-profit or governmental
institution that does not use the Patent Rights in the production or manufacture of products for
sale or the performance of services for a fee.
1.14 Non-royalty Sublicense Income means all sublicense issue fees, sublicense maintenance
fees, sublicense milestone payments, and similar non-royalty payments made by sublicensees to
Licensee on account of sublicenses pursuant to this Agreement.
1.15 Patent Rights means any or all of the following intellectual property to the extent
owned or controlled by the Foundation:
(a) The United States and foreign patents and patent applications listed in Appendix A
(including any and all patents and patent applications, if any, that may be added by a future
modification or amendment of this Agreement that satisfies the requirements of the last sentence of
Section 10.19), and all divisions and continuations of such applications;
(b) United States and foreign patents issued from the applications listed in Appendix A or
from divisionals or continuations of such applications;
(c) Claims of United States and foreign continuation-in-part applications, and all divisions
and continuations of such continuation-in-part applications, and of the resulting patents, to the
extent that the claims are directed to subject matter specifically described in the United States
or foreign patent applications listed in Appendix A;
(d) Claims of all foreign and United States counterpart patent applications to (a), (b), or
(c) above, and of the resulting patents, to the extent that the claims are directed to subject
matter specifically described in the patents or patent applications described in (a), (b), or (c)
above; and
(e) Any reissues, renewals, extensions, or supplementary protection certificates of patents
described in (a), (b), (c), or (d) above.
Patent Rights shall not include (c), (d), or (e) above to the extent that the claims are directed
to new matter that is not the subject matter described in (a) above.
1.16 Person means any individual, corporation, limited liability company, general or limited
partnership, joint venture, association, joint stock company, trust,
RXi Foundation License Optimized E75 (Peoples)
4
unincorporated business or
organization, government or agency or political subdivision thereof, or other entity, whether
acting in an individual, fiduciary, or other capacity.
1.17 Phase III Clinical Trial means: (a) that portion of the drug development and review
process in which an expanded clinical trial is conducted to gather the additional information about
effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of an
investigational new drug, as more specifically defined by the rules and regulations of the FDA,
including 21 C.F.R. § 312.21 or any future revisions or substitutes therefore; or (b) a similar
clinical trial in the European Union or any nation other than the United States. Commencement of a
Phase III Clinical Trial shall be deemed to occur upon the administration of Licensed Product (or
Licensed Process) or placebo to the first patient enrolled in the Phase III Clinical Trial.
1.18 Technology Rights means the Foundations rights in any technical information, know-how,
trade secret, process, procedure, composition, device, method, formula, protocol, technique,
software, design, drawing, or data that are: (a) created before the Effective Date by one or more
of the inventor(s) listed in Appendix A, and (b) not specifically claimed in Patent Rights but that
are necessary for practicing Patent Rights.
1.19 Territory means worldwide.
1.20 Valid Claim means a claim of: (a) any issued, unexpired Patent Right that has not been
revoked or held unenforceable or invalid by a decision of a court or governmental agency of
competent jurisdiction from which no appeal can be taken, or with respect to which an appeal is not
taken within the time allowed for appeal; or (b) any pending application for Patent Right that has
not been cancelled, withdrawn, or abandoned.
ARTICLE II
GRANT OF RIGHTS
2.1 The Foundation hereby grants to Licensee and Licensee accepts, subject to the terms and
conditions hereof, in the Territory and for the Field, a non-exclusive license to practice under
the Technology Rights and an exclusive (even as to Foundation, except as provided in Section 2.4,
and except when termination of the exclusivity of the license occurs pursuant to Article IX)
license (collectively, the License) to practice under the Patent Rights and, to the extent not
prohibited by other patents, to make, have made, use, have used, sell, have sold, export and import
Licensed Products and to practice Licensed Processes, until the expiration of this Agreement,
unless this Agreement shall be sooner terminated in accordance with the terms hereof.
2.2 In order to establish a period of commercial exclusivity for Licensee, the Foundation
agrees that it will not grant, in the Territory for the Field, any other license to
practice under the Patent Rights or to make, have made, use, have used, sell, have sold,
export or import Licensed Products or to practice the Licensed Processes, except as
RXi Foundation License Optimized E75 (Peoples)
5
required by the
obligations related to Section 2.4(a) or as permitted in Section 2.4(b), during the period of time
commencing with the Effective Date and ending with the first to occur of:
(a) The expiration of all Patent Rights;
(b) A court or tribunal, in a final decision not subject to further appeal, declaring invalid
or unenforceable all claims in the Patent Rights;
(c) The abandonment of all claims in the Patent Rights; or
(d) The termination of this Agreement or the termination of the exclusivity of the License in
accordance with Article IX
2.3 Subject to the Foundations prior approval, which approval shall not be unreasonably
withheld or delayed, Licensee shall have the right to grant sublicenses hereunder via written
sublicense agreements. The License granted to Licensee hereunder does not extend to any Affiliate
of Licensee unless and until such Affiliate enters into a written sublicense agreement with
Licensee that is consistent with the requirements hereof and the Foundation approves the written
sublicense agreement.
(a) In all sublicenses granted hereunder, Licensee shall provide that the sublicense is
subject and subordinate to all terms and conditions of this Agreement, except: (i) the sublicensee
may not grant any sublicenses except with the Foundations prior express written approval, and (ii)
any royalty or other payment paid by the sublicensee to Licensee may exceed the rate set forth in
this Agreement. Licensee shall attach a copy of this Agreement to any sublicense agreement and
shall provide a complete copy of the sublicense agreement to the Foundation promptly after signing
by the parties thereto.
(b) Licensee may not receive from any sublicensee anything of value in lieu of cash payments
in consideration for any sublicense under this Agreement, without the Foundations prior express
written approval, which shall not be unreasonably withheld or delayed.
(c) Sublicenses may extend past the expiration date of the exclusive period but any
exclusivity of such sublicenses shall expire upon the termination or expiration of Licensees
exclusivity. Upon any termination of this Agreement, sublicensees rights shall also terminate,
subject to Section 9.3.
2.4 The granting and exercise of the License is subject to the following conditions:
(a) The U.S. Government retains a nonexclusive, nontransferable, irrevocable, world-wide,
paid-up license to practice all invention(s) covered by the Patent Rights or Technology Rights and
to have such invention(s) practiced by or on behalf of
the U.S. Government and on behalf of any foreign government or international organization
pursuant to any existing or future treaty or agreement to which the U.S.
RXi Foundation License Optimized E75 (Peoples)
6
Government is a signatory.
(b) The Foundation and the USU reserve the rights to make and use, and grant to others
non-exclusive licenses to make and use for Non-commercial Research Purposes the subject matter
described and claimed in Patent Rights or Technology Rights.
(c) Licensee shall cause any Licensed Product produced for use or sale in the United States to
be manufactured substantially in the United States.
2.5 The License granted hereunder shall not be construed to confer any rights upon Licensee
(or sublicensees, if any) by implication, estoppel, or otherwise as to any technology not included
in the Patent Rights or the Technology Rights as defined herein.
ARTICLE III
LICENSE FEES AND MILESTONE AND
ROYALTY PAYMENTS
3.1 Licensee shall pay to the Foundation a non-creditable, non-refundable License issue
royalty in the sum of [* * *] ([* * *] for Patent 1 Patent Rights and [* * *] for Patent 2 Patent
Rights) within thirty (30) after the Effective Date.
3.2 No later than July 1 of each calendar year after the Effective Date of this Agreement,
Licensee shall pay to the Foundation the following minimum annual non-refundable license
maintenance royalties: [* * *] for Patent 1 Patent Rights and [* * *] for Patent 2 Patent Rights.
Commencing on January 1 of the calendar year immediately after the first sale of a Licensed Product
or Licensed Process anywhere in the Territory, and continuing annually thereafter, such minimum
annual non-refundable license maintenance royalties shall increase to: [* * *] for Patent 1 Patent
Rights and [* * *] for Patent 2 Patent Rights. Payments under this Section 3.2 shall be creditable
against other royalties (but not against milestone payments, if any) due pursuant to Sections 3.3
and 3.4 in the same calendar year only, but shall not be credited against any milestone payments
nor against royalties due for any other calendar year.
3.3 In further consideration for the rights to Patent Rights and Technology Rights granted
hereunder, Licensee shall pay to the Foundation semi-annually, within sixty (60) days after each
calendar half year ending June 30 and December 31, a royalty according to the following schedule
and provisions:
(a)
For sales of Licensed Products or Licensed Processes in the U.S.:
a royalty of [*
* *] of Net Sales until the expiration or termination of the E75 license agreement dated September
11, 2006 between Apthera, MDACC and the Foundation; thereafter [* * *] of Net Sales through the
remaining term of this Agreement;
RXi Foundation License Optimized E75 (Peoples)
7
For sales of Licensed Products or Licensed Processes outside the U.S., on a country-by-country
basis,
a royalty of:
(i) [* * *] of Net Sales in any and all jurisdictions in which a Licensed Product or Licensed
Process is covered by at least one Valid Claim, and
(ii) In all other jurisdictions, [* * *] of Net Sales until the expiration or termination of
the E75 license agreement dated September 11, 2006 between Apthera, MDACC and the Foundation, and
[* * *] of Net Sales thereafter.
(b)
Overriding provisions on royalty rates
(i) Royalty rates for the intellectual property licensed under this Agreement are reduced on a
pro rata
basis among all licensors such that combined stacking royalties with existing E75
intellectual property are limited to [* * *] where a Licensed Product or Licensed Process is
covered by at least one Valid Claim and [* * *] where not covered by a Valid Claim.
(ii) If the license pursuant to this Agreement is converted to a non-exclusive one and if
other non-exclusive licenses in the same field and territory are granted, after such conversion the
above royalty rates shall not exceed the royalty rate to be paid by other licensees in the same
field and territory during the term of the non-exclusive license.
(iii) On sales of Licensed Products or Licensed Processes between Licensee and its
sublicensees for resale, the royalty shall be paid only on the Net Sales of the sublicensees and
not on the Net Sales by Licensee to its sublicensees for resale.
(c) In the case of sublicenses, Licensee shall also pay to the Foundation a royalty on
Non-royalty Sublicense Income according to the following schedule and provisions:
(i) [* * *] until the expiration or termination of the E75 license agreement dated September
11, 2006 between Apthera, MDACC and the Foundation, and thereafter
(ii) [* * *] throughout the remaining term of this Agreement.
3.4 Licensee shall pay to the Foundation the following milestone payment(s) after the
associated milestone occurs (in each instance):
(a) [* * *]; due within thirty (30) days following the issuance of the first patent in the
Territory related to any portion of the intellectual property included within the Patent Rights.
RXi Foundation License Optimized E75 (Peoples)
8
(b) [* * *]; due within thirty (30) days following the start (administration of the first dose
to the first patient) of any Phase III trial.
(c) [* * *]; due within thirty (30) days following the first filing of the first NDA (or
equivalent filing) for any Licensed Product.
(d) [* * *]; due within thirty (30) days following the first Marketing Approval of any
Licensed Product; and
(e) [* * *]; due within six (6) months of the first commercial sale of any Licensed Product
anywhere in the Territory.
3.5 All payments due hereunder shall be paid in full, without deduction for any taxes or other
fees imposed by any government or any transfer, collection, or similar charges; any such tax, fee,
or charge shall be paid by Licensee.
3.6 Royalty payments shall be paid, by check or by wire transfer, in United States dollars in
Rockville, Maryland, or at such other place and manner as the Foundation may designate in writing
consistent with the laws and regulations controlling in any foreign country. If any currency
conversion is required in connection with any payments due hereunder, such conversion shall be made
by using the exchange rate existing in the United States as reported in
The Wall Street Journal
on
the last Business Day of the calendar half-year reporting period to which such payments relate.
3.7 [* * *] shall be due to the Foundation for any Licensed Product as to which the
manufacture, use, lease, or sale, is or shall be covered by more than one Patent Rights patent
application or Patent Rights patent licensed hereunder.
3.8 If Licensee is required to pay royalties to a third party to avoid infringing such third
partys intellectual property rights, as documented by a written advice of Licensees patent
counsel, Licensee shall be entitled to reduce the royalty payments made pursuant to Section 3.3 by
the amounts paid to such thirty party; provided, however, that the amounts paid pursuant to Section
3.3 will not be reduced by more than [* * *] and in no event shall be less than [* * *]. Such
reduction of royalty payments paid pursuant to Section 3.3 shall occur only in the same calendar
year as such required payment is made to such third party. Any such required payment shall not be
applied to reduce any milestone payments, nor to reduce any royalties due for any other calendar
year.
ARTICLE IV
DUE DILIGENCE
4.1 Licensee shall use its commercially reasonable efforts to bring one or more of the
Licensed Products and the Licensed Processes to market, in the Territory for the Field, through a
thorough, vigorous, and diligent program for exploitation of the Patent Rights and to continue
active, diligent development and marketing efforts for such
RXi Foundation License Optimized E75 (Peoples)
9
Licensed Products and Licensed Processes throughout the life of this Agreement. Thereafter,
until the expiration of this Agreement, Licensee shall endeavor to keep the Licensed Products and
the Licensed Processes continuously available to the public in the Territory for the Field.
4.2 In addition, Licensee shall adhere to the following milestones:
(a) Licensee shall deliver to the Foundation on or before sixty (60) days following the
Effective Date a business plan showing the estimated amount of money, number and kind of personnel,
and time budgeted and planned for each phase of development of the Licensed Products and the
Licensed Processes during the period ending on the first anniversary of the Effective Date.
Licensee shall provide an updated, similarly detailed business plan to the Foundation each year on
or before the anniversary of the Effective Date.
(b) Licensee shall enter into a Phase III Clinical Trial no later than December 31, 2012 and
shall have commenced the first sale of any Licensed Product no later than ten (10) years after the
Effective Date. Upon thirty (30) calendar days written notice from Licensor, Licensor may
terminate this Agreement if Licensee fails to initiate a Phase III Clinical Trial in the intended
patient population of node positive, HER2 1+ and/or 2+ breast cancer in the United States, the
European Union, Eastern Europe, Japan, India, China, or other country(ies) as may be mutually
agreed by the Parties hereto on or before December 31, 2012, unless before the end of such thirty
(30) calendar day period, Licensee provides evidence satisfactory to Licensor that it has initiated
the Phase III Clinical Trial. For the avoidance of doubt, Licensee must initiate a Phase III
Clinical Trial on or before December 31, 2012 unless specifically requested or demanded otherwise
by a strategic collaborative partner (identified by Licensee in writing to Licensor) or the U.S.
FDA or equivalent foreign regulatory agency. The December 31, 2012 deadline may be extended as
follows:
(i) At the election of the Licensee, prior to the December 31, 2012 deadline, Licensee may pay
to Licensor a [* * *] extension fee (the Option 1 Fee) and receive a six (6) month extension of
the December 31, 2012 deadline (as extended, the Option 1 Clinical Trial Date);
(ii) Upon Licensees timely payment of the Option 1 Fee and upon the mutual agreement of the
Parties, prior to the Option 1 Clinical Trial Date, Licensee may pay to Licensor a [* * *]
extension fee (the Option 2 Fee) and receive a second six (6) month extension of the Option 1
Clinical Trial Date (as extended, the Option 2 Clinical Trial Date);
(iii) Upon Licensees timely payments of the Option 1 Fee and the Option 2 Fee and upon the
mutual agreement of the Parties, prior to the Option 2 Clinical Trial Date, Licensee may pay to
Licensor a [* * *] extension fee (the Option 3 Fee) and receive a third six (6) month extension
of the Option 2 Clinical Trial Date (as extended, the Option 3 Clinical Trial Date).
RXi Foundation License Optimized E75 (Peoples)
10
ARTICLE V
REPORTING
5.1 No later than sixty (60) days after December 31 of each calendar year, Licensee shall
provide to the Foundation a written annual Progress Report describing progress on research and
development, regulatory approvals, manufacturing, sublicensing, marketing, and sales during the
most recent twelve (12) month period ended December 31 and plans for the forthcoming year. The
Progress Report shall describe the status of Licensees efforts to develop and commercialize
Licensed Product(s) or Licensed Process(es) in sufficient detail to enable the Foundation to
reasonably determine whether anticipated performance and payment milestones have been met and to
provide assurance that Licensee is developing Licensed Product(s) or Licensed Process(es). If
multiple technologies are covered by the License hereunder, the Progress Report shall provide the
information set forth above for each technology. If progress differs in any material respect from
that anticipated in the plan required under Section 4.2(a), Licensee shall explain the reasons for
the difference and propose a modified development plan for the Foundations review and approval,
not to be unreasonably withheld. Licensee shall also provide any reasonable additional data the
Foundation requires to evaluate Licensees performance.
5.2 Licensee shall report to the Foundation the date of the first sale of Licensed Products
(or use or sale of Licensed Processes) in each country within thirty (30) days of occurrence.
5.3 Royalty Reports.
(a) Licensee shall, commencing December 31, 2011, submit to the Foundation, within sixty (60)
days after each calendar half year ending June 30 and December 31 during the term of this
Agreement, a Royalty Report setting forth for such half year at least the following information:
(i) the number of Licensed Products sold by Licensee and all sublicensees in each country;
(ii) total dollar amount of billings, invoices, and receipts for Licensed Products sold by
Licensee and all sublicensees in each country (together with an accounting for currency
conversions, if any);
(iii) an accounting for all Licensed Processes used or sold by Licensee and all sublicensees
in each country;
(iv) the calculation of Net Sales, including applicable deductions;
(v) the amount of Non-royalty Sublicense Income received by Licensee;
RXi Foundation License Optimized E75 (Peoples)
11
(vi) an accounting for any deduction made pursuant to Section 3.8; and
(vii) the amount of royalty due to the Foundation for the reporting period or, if no royalties
are due for any reporting period, the statement that no royalties are due.
Such Royalty Report shall be certified as correct by an officer of Licensee and shall include a
detailed listing of all deductions from royalties otherwise due pursuant to this Agreement.
(b) Contemporaneous with the submission of each Royalty Report, Licensee shall pay to the
Foundation the amount of royalty due with respect to such half year. If multiple technologies are
covered by the License granted hereunder, Licensee shall specify which Patent Rights are utilized
for each Licensed Product and Licensed Process included in the Royalty Report.
(c) Late payments shall be subject to a charge of one and one-half percent (1-1/2%) per month,
or $250, whichever is greater.
5.4 In the event of an acquisition, merger, change of corporate name, or change of
organization or identity, Licensee shall notify the Foundation in writing within thirty (30) days
of such event.
5.5 If Licensee or any Affiliate or sublicensee (or optionee) does not qualify or ceases to
qualify as a small entity as provided by the United States Patent and Trademark Office, Licensee
shall notify the Foundation immediately.
ARTICLE VI
RECORD KEEPING
6.1 Licensee shall keep, and shall require its sublicensees to keep, accurate records
(together with supporting documentation) of Licensed Products and Licensed Processes made, used or
sold under this Agreement, appropriate to determine the amount of royalties due to the Foundation
hereunder. Such records shall be retained for at least three (3) years following the end of the
reporting period to which they relate. They shall be available during normal business hours, on not
less than ten (10) days prior notice from the Foundation, for examination by an accountant
selected by the Foundation, for the sole purpose of verifying reports and payments hereunder,
provided that the Foundation shall have the right to conduct such an examination not more than once
in any calendar year and only with respect to prior years that have not previously been subject to
such examination. In conducting examinations pursuant to this section, the Foundations accountant
shall have access to all records that the Foundation reasonably believes to be relevant to the
calculation of royalties and other payments required under Article III.
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6.2 The Foundations accountant shall not disclose to the Foundation any information other
than information relating to the accuracy of reports and payments made hereunder. In cases of
inaccurate reports and payment, Licensee shall promptly pay the Foundation any additional sum that
would have been payable to the Foundation had the Licensee reported correctly, plus interest on
said sum at the rate of one and one half percent (1-1/2%) per month.
6.3 Such examination by the Foundations accountant shall be at the Foundations expense,
except that if such examination shows an underreporting or underpayment in excess of the greater of
(i) five percent (5%) or (ii) Ten Thousand Dollars ($10,000) for any twelve (12) month period, then
Licensee shall pay the Foundation the reasonable cost of such examination (as well as any
additional sum that would have been payable to the Foundation had the Licensee reported correctly,
plus interest on said sum at the rate of one and one half percent (1-1/2%) per month). In addition,
if such examination shows an underreporting or underpayment in excess of fifteen percent (15%) or
more for any calendar year period, then in addition to the above, Licensee shall pay the Foundation
an underpayment penalty fee equal to twenty-five percent (25%) of the amount of the additional sum
that would have been payable to the Foundation had the Licensee reported correctly.
ARTICLE VII
DOMESTIC AND FOREIGN PATENT FILING AND MAINTENANCE
7.1 Patent 1 Patent Rights.
(a)
Licensee Prosecution
(i) Foundation grants Licensee the right to be responsible for the preparation, filing,
prosecution and maintenance of any and all Patent Rights that relate to the intellectual property
described under the Patent 1 heading of Appendix A (the Patent 1 Patent Rights). Licensee
agrees to prosecute and maintain at Licensees expense the patent applications listed under the
Patent 1 heading of Appendix A. Licensee further agrees to file at Licensees expense any
additional continuation or divisional application(s) required to retain all embodiments of Patent 1
Patent Rights contained in said patent applications. Licensee agrees not to abandon or otherwise
undermine prosecution of any Patent 1 Patent Rights without the prior written approval of the
Foundation.
(ii) Licensee shall consult with the Foundation as to the preparation, filing, prosecution and
maintenance of the Patent 1 Patent Rights and agrees to keep the Foundation promptly and fully
informed of the course of patent prosecution of the Patent 1 Patent Rights, by providing the
Foundation with copies of all documents relevant to any such preparation, filing, prosecution, or
maintenance, including but not limited to substantive communications and notices, search reports,
third party observations submitted to or received from patent offices throughout the Territory,
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foreign patent applications, Office Actions and Examination Reports from patent offices, and
proposed draft responses. The Foundation shall have the right to review all such documents, prior
to their submission, and may offer recommendations to Licensee to amend such contemplated
preparation, filing, prosecution, or maintenance, and provide a list of the countries where the
Foundation desires Licensee to file patent applications. Licensee will make a reasonable effort to
implement such Foundation recommendations, provided the Foundation recommendations are acceptable
to outside patent counsel and are received in sufficient time to meet any pertinent deadlines. The
Foundation shall provide such patent consultation to Licensee at no cost to Licensee.
(iii) In the event the Licensee elects not to, or fails to, continue prosecution, in whole or
in part, of any Patent 1 Patent Rights in any particular country or countries, the Foundation shall
have the right (but not the obligation) at its own expense to undertake the prosecution and
maintenance of the Patent 1 Patent Rights. The Licensee shall notify the Foundation in writing of
any election not to pursue the prosecution or maintenance of any Patent 1 Patent Rights at least
sixty (60) days prior to any applicable deadline or loss of rights
.
(A) Licensee shall have an obligation to pay a royalty on Net Sales of Licensed Products or
Licensed Processes in any country in which Licensee discontinued prosecuting or abandoned Patent 1
Patent Rights. In addition, Licensee shall reimburse Foundation for all patent prosecution
expenses that Foundation reasonably incurs pursuant to its election to prosecute Patent 1 Patent
Rights under this Section 7.1(a)(iii) in any country in which Licensee has Net Sales.
(iv) Foundation shall provide reasonable efforts to aid Licensee in obtaining signatures or
inventor assistance as necessary to further prosecution and to secure the full protection and
ownership of all rights in and to the Licensed Products and the Licensed Processes, but Licensee
acknowledges that inventors include employees of the U.S. Government and other individuals, none of
whom are employed by the Foundation.
(b) After execution of this Agreement and within thirty (30) days of the Foundations
submission of an invoice, Licensee shall reimburse the Foundation for [* * *], which is the total
of all third party expenses the Foundation has incurred and paid prior to the Effective Date for
the preparation, filing, prosecution, and maintenance of Patent 1 Patent Rights. If expenses are
incurred by Foundation after the Effective Date that are reimbursable by Licensee under the terms
hereof, the Licensee shall reimburse the Foundation for all such future third party expenses within
thirty (30) days after Licensees receipt of invoices from the Foundation. Payment of these
invoices that is made more than the number of days specified above after submission shall be
considered late and subject to interest charges of one and one-half percent (1-1/2%) per month.
(c) The Foundation and Licensee shall cooperate fully in the preparation, filing, prosecution
and maintenance of Patent 1 Patent Rights licensed to Licensee hereunder, executing all papers and
instruments or requiring employees or
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14
agents to execute such papers and instruments so as to enable the Foundation or Licensee to
apply for, to prosecute, and to maintain patent applications and patents in the Foundations name
in any country. Each Party shall provide to the other prompt notice as to all matters that come to
its attention and that may affect the preparation, filing, prosecution, or maintenance of any such
patent applications or patents.
(d) Licensee may elect to surrender its Patent 1 Patent Rights in any country upon sixty (60)
days written notice to the Foundation. Such notice shall not relieve Licensee from responsibility
for Patent 1 Patent Right-related expenses incurred prior to the expiration of the sixty (60)-day
notice period (or such longer period specified in Licensees notice).
7.2 Patent 2 Patent Rights
(a) The Foundation, in its sole discretion, shall be responsible for the preparation, filing,
prosecution, and maintenance of any and all patent applications and patents relating to the
intellectual property described under the Patent 2 heading of Appendix A (the Patent 2 Patent
Rights), and Licensee shall be responsible for [* * *] of the expenses incurred by the Foundation
for such preparation, filing, prosecution, and maintenance (all of such expenses constituting the
Patent 2 Patent Expenses). The Foundation shall consult with Licensee as to the preparation,
filing, prosecution and maintenance of such patent applications and patents and shall furnish to
Licensee copies of documents relevant to any such preparation, filing, prosecution, or maintenance.
(b) After execution of this Agreement and within thirty (30) days of the Foundations
submission of an invoice, Licensee shall reimburse the Foundation for [* * *], which is [* * *] of
all third party expenses the Foundation has incurred and paid prior to the Effective Date for the
preparation, filing, prosecution, and maintenance of Patent 2 Patent Expenses. Thereafter,
Licensee shall reimburse the Foundation for [* * *] of all subsequently incurred Patent 2 Patent
Expenses within thirty (30) days after Licensees receipt of invoices from the Foundation. Late
payment of these invoices shall be subject to interest charges of one and one-half percent (1 1/2%)
per month.
(c) The Foundation and Licensee shall cooperate fully in the preparation, filing, prosecution
and maintenance of Patent 2 Patent Rights licensed to Licensee hereunder, executing all papers and
instruments or requiring employees or agents to execute such papers and instruments so as to enable
the Foundation to apply for, to prosecute, and to maintain patent applications and patents in the
Foundations name in any country. Each Party shall provide to the other prompt notice as to all
matters that come to its attention and that may affect the preparation, filing, prosecution, or
maintenance of any such patent applications or patents.
(d) Licensee may elect to surrender its Patent 2 Patent Rights in any country upon sixty (60)
days written notice to the Foundation. Such notice shall not relieve Licensee from responsibility
to reimburse the Foundation for [* * *] of Patent 2 Patent Expenses incurred prior to the
expiration of the sixty (60)-day notice period (or such longer period specified in Licensees
notice).
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ARTICLE VIII
INFRINGEMENT
8.1 With respect to any Patent Rights that are exclusively licensed to Licensee pursuant to
this Agreement, Licensee shall have the right, within the Territory, to prosecute in its own name
and at its own expense any infringement of such patent, so long as such License is exclusive at the
time of the commencement of such action. The Foundation agrees to notify Licensee promptly of each
infringement of such patents of which the Foundation is or becomes aware. Before Licensee
commences an action with respect to any infringement of such patents, Licensee shall give careful
consideration to the views of the Foundation and to potential effects on the public interest in
making its decision whether or not to sue.
(a) If Licensee elects to commence an action as described above, Foundation may, to the extent
permitted by law and at the Foundations own expense, elect to join as a party in that action.
Regardless of whether the Foundation elects to join as a party, the Foundation shall cooperate
fully with Licensee in connection with any such action.
(b) If the Foundation elects to join as a party pursuant to subsection (a), the Foundation
shall jointly control the action with Licensee.
8.2 If Licensee elects to commence an action as described above, Licensee may deduct from its
royalty payments to the Foundation with respect to the patent(s) subject to suit an amount not
exceeding [* * *] of Licensees expenses and costs of such action, including reasonable attorneys
fees; provided, however, that such reduction shall not exceed [* * *] of the total royalty due to
the Foundation with respect to the patent(s) subject to suit for each calendar year. If such [* *
*] of Licensees expenses and costs exceeds the amount of royalties deducted by Licensee for any
calendar year, Licensee may to that extent reduce the royalties due to the Foundation from Licensee
in succeeding calendar years, but never by more than [* * *] of the total royalty due in any one
year with respect to the patent(s) subject to suit.
8.3 No settlement, consent, judgment or other voluntary final disposition of the suit may be
entered into without the prior written consent of the Foundation, which consent shall not be
unreasonably withheld or delayed.
8.4 Recoveries or reimbursements from actions commenced pursuant to this Article shall first
be applied to reimburse Licensee and the Foundation for litigation costs (excluding Licensee
litigation costs deducted from royalty payments pursuant to Section 8.2) not paid from royalties
and then to reimburse the Foundation for royalties deducted by Licensee pursuant to Section 8.2.
Licensee and the Foundation shall share any remaining recoveries or reimbursements [* * *].
8.5 If Licensee elects not to exercise its right to prosecute an infringement of the Patent
Rights pursuant to this Article, the Foundation may do so at its own expense,
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16
controlling such action and retaining all recoveries therefrom. Licensee shall cooperate
fully with the Foundation in connection with any such action.
8.6 Without limiting the generality of Section 8.5, the Foundation may, at its election and by
notice to Licensee, establish a time limit of sixty (60) days for Licensee to decide whether to
prosecute any infringement of which the Foundation is or becomes aware. If, by the end of such
sixty (60)-day period, Licensee has not commenced such an action, the Foundation may prosecute such
an infringement at its own expense, controlling such action and retaining all recoveries therefrom.
With respect to any such infringement action prosecuted by the Foundation in good faith, Licensee
shall pay over to Foundation any payments (whether or not designated as royalties) made by the
alleged infringer to Licensee under any existing or future sublicense authorizing Licensed Products
or Licensed Processes, up to the amount of the Foundations unreimbursed litigation expenses
(including, but not limited to, reasonable attorneys fees).
8.7 If a declaratory judgment action is brought naming Licensee as a defendant and alleging
invalidity of any of the Patent Rights, the Foundation may elect to take over the sole defense of
the action at its own expense. Licensee shall cooperate fully with the Foundation in connection
with any such action.
8.8 During the exclusive period of the Licensees License hereunder, Licensee shall have the
sole right, in accordance with the terms and conditions hereof, to sublicense any alleged infringer
within the Territory for the Field. Any upfront fees paid in connection with such sublicense shall
be shared [* * *] between Licensee and the Foundation; other royalties shall be treated in
accordance with Article III.
ARTICLE IX
TERMINATION OF AGREEMENT
9.1 This Agreement, unless terminated as provided herein, shall remain in effect until the
last patent or patent application in Patent Rights has expired or been abandoned.
9.2 The Foundation may terminate this Agreement in the circumstances set forth in this
Section, and any such termination shall be effective immediately upon the Foundation giving written
notice to Licensee of any of the following:
(a) if Licensee does not make a payment due hereunder and fails to cure such non-payment
(including the payment of interest in accordance with Section 5.3(c)) within thirty (30) days after
the date of notice in writing of such non-payment by the Foundation;
(b) if Licensee defaults in any of its material obligations under Sections 10.4(c), 10.4(d),
and 10.4(e) to procure and maintain insurance;
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17
(c) at any time after two (2) years from the Effective Date of this Agreement, the
Foundation may, in its sole discretion, either terminate this Agreement and the License granted
hereunder or render the exclusive portion of the License non-exclusive if, in the Foundations
reasonable judgment, the Progress Reports furnished by Licensee do not demonstrate that Licensee
has:
(i) either (A) put the licensed subject matter into commercial use in the Territory, directly
or through a sublicense, and is keeping the licensed subject matter continuously available to the
public, or (B) has been and continues to be engaged in research, development, manufacturing,
marketing or sublicensing activity appropriate to achieving the purposes set forth in Section 4.1;
and
(ii) met all relevant performance milestone(s) for the period covered by the most recent
Progress Report and all preceding Progress Reports, or the Parties have mutually agreed in writing
on a plan for meeting such milestone within twelve (12) months thereafter;
(d) if Licensee: is unable to pay its debts as such debts become due; makes a general
assignment for the benefit of creditors; has a petition in bankruptcy or a suit seeking
reorganization, liquidation, dissolution, or similar relief filed against it and such petition or
suit is not dismissed within sixty (60) days of its filing; or files or permits the filing of any
petition or answer seeking to adjudicate itself bankrupt or insolvent, or seeking for itself any
liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of Licensee or its debts under any law relating to bankruptcy, insolvency, or
reorganization or relief of debtors, or seeking or consenting to the appointment of a trustee,
custodian, receiver, liquidator or other similar official for Licensee or for any substantial part
of its property; or takes any corporate action to authorize any of the foregoing actions;
(e) if an examination by Foundations accountant pursuant to Article VI shows a willful or
intentionally fraudulent underreporting or underpayment by Licensee in excess of fifteen percent
(15%) for any twelve (12) month period;
(f) if Licensee is convicted of a felony relating to the manufacture, use, or sale of any
Licensed Product or Licensed Process; or
(g) except as provided in subsections (a), (b), (c), (d), (e) and (f) above, if Licensee
defaults in the performance of any obligations under this Agreement and the default has not been
remedied within ninety (90) days after the date of notice in writing of such default by the
Foundation.
9.3 Licensee shall provide, in all sublicenses granted by it under this Agreement, that
Licensees interest in such sublicenses shall at the Foundations option terminate or be assigned
to the Foundation upon termination of this Agreement.
9.4 This Agreement may be terminated at any time by mutual written agreement between the
Parties, subject to any terms herein which survive termination. Upon termination, Licensee shall
submit a final Royalty Report to the Foundation and
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18
any royalty payments, including royalty
payments on any and all future sales of Licensed Products made but not yet sold at the time of
termination, and unreimbursed patent expenses invoiced under this Agreement by the Foundation prior
to termination shall become immediately payable.
9.5 Upon termination, Licensee shall promptly provide to Foundation all data, including all
pre-clinical data, clinical data, manufacturing data, and marketing data, derived during
development or attempted development of Licensed Products or Licensed Processes. Licensee shall
also provide to Foundation copies of all FDA submissions and correspondence related to Licensed
Products or Licensed Processes. In addition, Licensee shall promptly provide Foundation the entire
official file wrapper concerning prosecution of Patent 1 whether from outside counsel or internal
counsel.
9.6 Upon termination, Licensee grants to Foundation a nonexclusive royalty-bearing license
with the right to sublicense with respect to improvements made by Licensee (including improvements
licensed by Licensee from third parties to the extent Licensee has the right to grant such
sublicenses). Licensee and Foundation agree to negotiate in good faith the royalty rate for such
nonexclusive license. Foundations right to sublicense others hereunder is solely for the purpose
of permitting others to develop and commercialize the entire technology related to the subject
matter of this Agreement.
9.7 Articles I and VI and Sections 2.5, 5.3 (only as it relates to any overdue Royalty
Report(s) and to the Royalty Report for the half year during which the termination occurs), 7.2,
8.3, 8.4, 9.5, 9.6, 9.7, 10.1 through 10.8 inclusive, 10.10, 10.11, and 10.13 through 10.20
inclusive shall survive any expiration or termination of this Agreement indefinitely.
Additionally, any rights or remedies arising out of a breach or violation of any terms of this
Agreement will survive any expiration or termination of this Agreement. The expiration or
termination of this Agreement shall not discharge either Party from any obligation that it owes to
the other Party by reason of any loss, cost, damage, expense, liability, or contractual duty that
occurs or arises (or the circumstances, events, or basis of which occurs or arises) prior to such
expiration or termination, and shall not affect the right of either Party to institute or maintain
any action for damages relating to any breach of this Agreement by the other Party prior to the
date of termination. It is the intent of the Parties that any such obligation owed by a Party to
the other Party arising before the date of expiration or termination (whether the same shall be
known or unknown at such date, or whether the circumstances, events, or basis of the same shall be
known or unknown at such date), including royalty obligations (computed in accordance with Article
III) on sales made or ordered prior to the date of termination or expiration, indemnification
obligations, and confidentiality obligations, shall survive the expiration or termination of this
Agreement.
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19
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1
Rules of Construction.
This Agreement is to be interpreted in accordance with
the following rules of construction:
(a)
Number and Gender
. All definitions of terms apply equally to both the singular
and plural forms of the terms defined. Whenever the context may require, any pronoun shall include
the corresponding masculine, feminine, and neuter forms.
(b)
Including; Herein; Etc
. The words include, includes, and including are
deemed to be followed by the phrase without limitation. The words herein, hereof, and
hereunder and words of similar import refer to this Agreement (including all Appendices) in its
entirety and are not limited to any part hereof, unless the context shall otherwise require. The
word or is not exclusive and means and/or.
(c)
Sales
. The terms sold, sell, and sale(s) include leases and other transfers
and similar transactions for consideration.
(d)
Subdivisions and Attachments
. All references in this Agreement to Articles,
Sections, subsections, paragraphs, and Appendices are, respectively, references to Articles,
Sections, subsections, and paragraphs of, and Appendices to, this Agreement, unless otherwise
specified.
(e)
References to Documents and Laws
. All references to this Agreement or any
Appendix hereof are to it as amended, modified, and supplemented from time to time in accordance
with the terms of this Agreement. All references to (i) any other agreement or instrument or (ii)
any statute, law, regulation, permit, or similar item are to it as amended and supplemented from
time to time (and, in the case of a statute, law or regulation, to any corresponding provisions of
successor statutes, laws, or regulations), unless otherwise specified.
(f)
References to Days
. Any reference in this Agreement to a day or number of
days (without the explicit qualification Business) is a reference to a calendar day or number
of calendar days. If any action or notice is to be taken or given on or by a particular calendar
day, and such calendar day is not a Business Day, then such action or notice may be taken or given
on the next Business Day.
(g)
Examples
. If, in any provision of this Agreement any example is given (through
the use of the words such as, for example,
e.g
., or otherwise) of the meaning,
intent, or operation of any provision of this Agreement, such example is intended to be
illustrative only and not exclusive.
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(h)
Currency
. Except as expressly provided herein, all prices or other monetary
amounts stated in this Agreement are, and all monetary amounts stated in any report to be delivered
pursuant hereto shall be, stated in United States Dollars.
(i)
Participation in Drafting
. Both Parties and their respective legal counsel have
participated, or had the opportunity to participate, in the drafting of this Agreement, and this
Agreement will be construed simply and according to its fair meaning and not strictly for or
against either Party.
10.2
Representations and Warranties
.
(a) Each Party covenants, represents, and warrants to the other Party that: it is a
corporation duly organized and validly existing under the laws of the jurisdiction in which it is
incorporated; this Agreement is legally binding upon it and enforceable in accordance with its
terms; and the execution, delivery and performance of this Agreement does not conflict with any
agreement, instrument or understanding, oral or written, to which it is a party or by which it may
be bound, nor violate any material law or regulation of any governmental or regulatory authority
having jurisdiction over it.
(b) Foundation further covenant, represent, and warrant to Licensee that:
(i) Foundation is the sole owner of the Patent Rights and has the right to grant the License
to Licensee as set forth in this Agreement;
(ii) Foundation has not granted any rights in the Licensed Patents or the Licensed Process
that are inconsistent with or that limit the rights granted to Licensee under this Agreement; and
(iii) Foundation is not aware that any of the Licensed Patents or the Licensed Process
infringes the rights of any third party.
(c) Foundation does not warrant the validity of the Patent Rights licensed hereunder and makes
no representations whatsoever with regard to the scope of the licensed Patent Rights or that such
Patent Rights may be exploited by Licensee or any sublicensee without infringing other patents.
(d) EXCEPT AS EXPRESSLY PROVIDED IN SECTION 10.2(a) AND (b), FOUNDATION EXPRESSLY DISCLAIMS
ANY AND ALL IMPLIED AND EXPRESS WARRANTIES AND MAKES NO WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OF THE PATENT RIGHTS, OR INFORMATION SUPPLIED BY THE FOUNDATION, OR OF THE
LICENSED PROCESSES OR LICENSED PRODUCTS CONTEMPLATED BY THIS AGREEMENT.
10.3 Limitation of Liability. IN NO EVENT SHALL ANY PARTY BE LIABLE FOR ANY INDIRECT,
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES (INCLUDING DAMAGES FOR LOSS OF PROFITS OR EXPECTED
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21
SAVINGS OR OTHER ECONOMIC LOSSES, OR FOR INJURY TO PERSONS OR PROPERTY) ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ITS SUBJECT MATTER, REGARDLESS OF WHETHER SUCH PARTY KNOWS OR
SHOULD KNOW OF THE POSSIBILITY OF SUCH DAMAGES. THE FOUNDATIONS AGGREGATE LIABILITY FOR ALL
DAMAGES OF ANY KIND RELATING TO THIS AGREEMENT OR ITS SUBJECT MATTER SHALL NOT EXCEED THE AMOUNT
PAID BY LICENSEE TO THE FOUNDATION UNDER THIS AGREEMENT. The foregoing exclusions and limitations
shall apply to all claims and actions of any kind, whether based on contract, tort (including but
not limited to negligence), or any other grounds.
10.4
Indemnification and Insurance
.
(a) Licensee shall indemnify, defend and hold harmless the Foundation and its current and
former directors, board members, trustees, officers, employees, and agents and their respective
successors, heirs and assigns (collectively, the Indemnitees), from and against any and all
claims, liabilities, costs, expenses, damages, deficiencies, losses or obligations of any kind or
nature (including reasonable attorneys fees and other costs and expenses of litigation)
(collectively Claims) based upon, arising out of, or otherwise relating to this Agreement,
including without limitation any cause of action relating to product liability concerning any
product, process, or service made, used, or sold pursuant to any right or license granted under
this Agreement.
(b) Licensee shall, at its own expense, provide attorneys reasonably acceptable to the
Foundation to defend against any actions brought or filed against any Indemnitee(s) hereunder with
respect to the subject of indemnity contained herein, whether or not such actions are rightfully
brought.
(c) Beginning at the time any such product, process or service is being commercially
distributed or sold (other than for the purpose of obtaining regulatory approvals) by Licensee or
by any sublicensee or agent of Licensee, Licensee shall, at its sole cost and expense, procure and
maintain commercial general liability insurance in amounts not less than $2,000,000 per incident
and $4,000,000 annual aggregate and naming the Indemnitees as additional insureds. During clinical
trials of any such product, process, or service, Licensee shall, at its sole cost and expense,
procure and maintain commercial general liability insurance in such equal or lesser amount as the
Foundation shall require, naming the Indemnitees as additional insureds. Such commercial general
liability insurance shall provide (i) product liability coverage and (ii) broad form contractual
liability coverage for Licensees indemnification under this Agreement. If Licensee elects to
self-insure all or part of the limits described above (including deductibles or retentions that are
in excess of $250,000 annual aggregate) such self-insurance program must be acceptable to the
Foundation in its sole discretion. The minimum amounts of insurance coverage required shall not be
construed to create a limitation of Licensees liability with respect to its indemnification under
this Agreement.
(d) Licensee shall provide the Foundation with written evidence of such insurance upon request
of the Foundation. Licensee shall provide the Foundation
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22
with written notice at least fifteen (15)
days prior to the cancellation, non-renewal, or material change in such insurance; if Licensee does
not obtain replacement insurance providing comparable coverage within such fifteen (15) day period,
the Foundation shall have the right to terminate this Agreement effective at the end of such
fifteen (15) day period without notice or any additional waiting periods.
(e) Licensee shall maintain such commercial general liability insurance beyond the expiration
or termination of this Agreement during (i) the period that any product, process, or service,
relating to, or developed pursuant to, this Agreement is being commercially distributed or sold by
Licensee or by a sublicensee or agent of Licensee and (ii) a reasonable period, but in no event
less than five (5) years, after the period referred to in clause (i), above.
10.5
Limitation on Advertising and Publicity
. Except as required by law, including
applicable rules and regulations of the U.S. Securities and Exchange Commission and stock exchange
listing requirements, Licensee shall not use the Foundations or USUs name or insignia, or the
name or insignia of the U.S. Government or any agency thereof, or any adaptation of the foregoing,
or the name of any of Foundations or USUs inventors, in any press release, public announcement,
advertising, promotional, or sales literature without the prior written approval of the Foundation
or USU, as the case may be.
10.6
Assignment
. Neither this Agreement nor the rights granted hereunder shall be
transferred or assigned in whole or in part by Licensee to any person, whether voluntarily or
involuntarily, by operation of law, or otherwise, without the prior written consent of the
Foundation, which will not unreasonably be withheld or delayed. Notwithstanding the foregoing,
this Agreement and Licensees rights hereunder may be assigned or transferred to an entity that
acquires all or substantially all of the assets or business of Licensee or Licensees business unit
holding the License, whether through merger, sale of stock, sale of assets, reorganization, or
otherwise. This Agreement shall be binding upon and inure to the benefit of the Parties and their
respective successors, legal representatives, and permitted assignees.
10.7
Governing Law
. This Agreement shall be governed by and construed and interpreted
in accordance with the laws of the State of Maryland, as to all matters, including matters of
validity, construction, effect, performance, and remedies, irrespective of any contrary choice of
law that otherwise would be applicable under the choice of laws principles of any jurisdiction.
10.8
Compliance with Laws and Regulations
. Licensee shall comply with all applicable
laws and regulations, including United States laws and regulations controlling exports. Licensee
agrees that it will be solely responsible for any violation of applicable laws or regulations by
Licensee or its Affiliates or sublicensees, and that it will defend and hold the Foundation
harmless in the event of any legal action of any nature occasioned by such violation.
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23
10.9
Regulatory Approvals; Patent Markings
. Licensee agrees (i) to obtain all
regulatory approvals required for the manufacture and sale of Licensed Products and Licensed
Processes and (ii) to utilize appropriate patent marking on such Licensed Products. Licensee also
agrees to register or record this Agreement as is required by law or regulation in any country
where the License is in effect.
10.10
Confidential Information and Intellectual Property
. Except as specifically
required to comply with obligations set forth in this Agreement, neither Party shall be obligated
to disclose or furnish to the other Party any Confidential Information of such first Party or any
confidential or proprietary information, technology, or intellectual property of any third party in
such first Partys possession or control. If, however, the Parties have heretofore entered or
hereafter enter into a confidential information nondisclosure agreement or similar agreement (the
NDA), neither Party may terminate the NDA prior to the termination or expiration of this
Agreement. If the Parties have not entered into an NDA, each Party agrees, for the greater of a
period of five (5) years after each disclosure or during the pendency of this Agreement, to
maintain in confidence all Confidential Information disclosed to it by the other Party and to
protect such Confidential Information by using the same degree of care, but no less than a
reasonable degree of care, as the receiving Party uses to protect its own similar confidential
information.
10.11
Headings
. The article, section, and other headings contained in this Agreement
are for reference purposes only and are not intended to describe, interpret, define, or limit the
scope, extent, or intent of this Agreement.
10.12
Counterpart Execution
. This Agreement and any modification or amendment thereof
may be executed in counterparts, including counterparts transmitted by electronic mail or facsimile
transmission, all of which shall be considered one and the same agreement, and shall become
effective when such counterparts have been signed by each of the Parties and delivered to the other
Party.
10.13
Waivers; Remedies Generally
. The observance of any term of this Agreement may be
waived (whether generally or in a particular instance and either retroactively or prospectively) by
the Party entitled to enforce such term, but any such waiver will be effective only if in a writing
signed by the Party against which such waiver is to be asserted. Except as otherwise provided in
this Agreement, no failure or delay of either Party in exercising any power, right, or remedy under
this Agreement will operate as a waiver thereof, nor will any single or partial exercise of any
such right, power, or remedy, preclude any other or further exercise thereof or the exercise of any
other right, power, or remedy. A waiver by either Party shall be limited to the specific instance
in which it is given and, therefore, any waiver by either Party of any obligation of the other
Party under or breach by the other Party of this Agreement or of any power, right, or remedy of the
waiving Party shall not be a waiver of any other obligation or further or future performance of the
same obligation, of any other or succeeding breach, of any other or further exercise of such power,
right, or remedy or any other power, right, or remedy.
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10.14
Severability
. To the extent that any provision of this Agreement shall be
judicially unenforceable in any one or more jurisdictions, such provision shall not be affected
with respect to any other jurisdiction, each provision with respect to each jurisdiction being
construed as several and independent. If any term or provision of this Agreement or the
application thereof to any person or circumstance is, to any extent, declared or found to be
illegal, unenforceable, or void, then both Parties will be relieved of all obligations arising
under such term or provision, but only to the extent that such term or provision is illegal,
unenforceable, or void, it being the intent and agreement of the Parties that this Agreement will
be deemed amended by modifying such term or provision to the extent necessary to make it legal and
enforceable while preserving its intent or, if that is not possible, by substituting therefor
another term or provision that is legal and enforceable and achieves the same objective. If the
remainder of this Agreement will not be affected by such declaration or finding and is capable of
substantial performance, then each term and provision not so affected will be enforced to the
extent permitted by law. If necessary to effect the intent of the Parties, the Parties will
negotiate in good faith to amend this Agreement to replace the unenforceable language with
enforceable language that as closely as possible reflects such intent and to amend any other term
or provision thereby rendered incapable of substantial performance or otherwise affected thereby to
the extent necessary to permit the practical realization, insofar as legally possible, of the
intent of the Parties.
10.15
Relationship of the Parties; Disclaimer of Agency
.
(a)
Independent Contractors
. In entering into and carrying out this Agreement, the
Parties will be acting solely as independent contractors. Nothing in this Agreement creates, has
created, or will create any partnership, joint venture, or other business association between the
Parties, nor any duties or responsibilities of partners, venturers, or members of a business
association.
(b)
No Agency
. Except for provisions in this Agreement expressly authorizing one
Party to act for the other, this Agreement will not constitute either Party as a legal
representative or agent of the other Party, nor will either Party have the right or authority to
assume, create, or incur any liability or any obligation of any kind, expressed or implied, against
or in the name or on behalf of the other Party unless otherwise expressly permitted by such Party.
10.16
No Third Party Beneficiaries
. The representations, warranties, covenants, and
undertakings contained in this Agreement are for the sole benefit of the Parties, their
sublicensees, and the Parties permitted successors and assigns and shall not be construed as
creating any third party beneficiaries of this Agreement or as conferring any rights whatsoever on
any third party.
10.17
Notices
. Unless otherwise expressly agreed by the Party receiving notice, any
notice, demand, or other communication required or permitted to be given by either Party under any
provision of this Agreement must be in writing, in the English language, and mailed (certified or
registered mail, postage prepaid, return receipt requested) or sent
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25
by hand or overnight courier,
or by facsimile (with acknowledgment received), charges prepaid and addressed to the intended
recipient at such Partys address set forth below, or to such other address or number as such Party
may from time to time specify by notice to the other Party as provided in this Section. All
notices and other communications given in accordance with the provisions of this Agreement will be
deemed to have been given and received (i) when actually delivered by hand, by mail, or by courier,
or (ii) when transmitted by facsimile (with acknowledgment received and a copy of such notice is
sent no later than the next Business Day by a reliable overnight or two-day courier service, with
acknowledgment of receipt).
If to RXi:
RXi Pharmaceuticals Corporation
ATTN: President and CEO
60 Prescott Street
Worcester, MA 01605
Fax: 508-767-3862
If to Apthera:
Apthera, Inc.
ATTN: President and CEO
60 Prescott Street
Worcester, MA 01605
Fax: 508-767-3862
If to the Foundation:
The Henry M. Jackson Foundation for
the Advancement of Military Medicine, Inc.
ATTN: General Counsel
1401 Rockville Pike, Suite 600
Rockville, MD 20852
Fax: 301-294-8130
10.18
Disputes
. In the event of any controversy or claim arising out of or relating
to any provision of this Agreement or the breach thereof, the Parties shall try to settle such
conflict amicably. Subject to the limitation stated in the final sentence of this Section, any
such conflict that the Parties are unable to resolve promptly shall be settled through arbitration
conducted in accordance with the rules of the American Arbitration Association. The demand for
arbitration shall be filed within a reasonable time after the controversy or claim has arisen, and
in no event after the date upon which institution of legal proceedings based on such controversy or
claim would be barred by the applicable statute of limitations. Such arbitration shall be held in
Montgomery County, Maryland. The award through arbitration shall be final and binding. Either
Party may enter any such award in a court having jurisdiction or may make application to such court
for judicial
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26
acceptance of the award and an order of enforcement, as the case may be.
Notwithstanding the foregoing, either Party may, without recourse to arbitration, assert against
the other Party a third-party claim or cross-claim in any action brought by a third party, to which
the subject matter of this Agreement may be relevant.
10.19
Entire Agreement; Modifications
. This Agreement constitutes the complete
agreement between the Parties concerning the subject matter hereof and replaces any prior oral or
written communications between the Parties. There are no conditions, understandings, agreements,
representations, or warranties, express or implied, that are not specified herein, and neither
Party shall be obligated by any condition or representation other than those expressly stated
herein or as may be subsequently agreed by the Parties in writing. Any purported modification or
amendment of the express terms or provisions of this Agreement shall be effective only if contained
in a written instrument signed by each Party.
10.20
Force Majeure
. No Party shall be liable to the other Party for any losses or
damages to the extent and for the period of time that they are attributable to a default or breach
of this Agreement that is the result of war (whether declared or undeclared), acts of God,
revolution, acts of terrorism, fire, earthquake, flood, pestilence, riot, enactment of change of
law following the Effective Date, accident, labor trouble, or shortage of or inability to obtain
material equipment or transport or any other cause beyond the reasonable control of such Party;
provided, however, that if such a cause occurs, then the Party affected will promptly notify the
other Party of the nature and likely result and duration (if known) of such cause and use
commercially reasonable efforts to mitigate any adverse effects under this Agreement. If the event
lasts for a period longer than three (3) months, the Parties shall meet and discuss appropriate
modifications to this Agreement or other remedial measures.
SIGNATURE PAGE FOLLOWS
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THE FOUNDATION AND LICENSEE HAVE READ THIS AGREEMENT INCLUDING ALL APPENDICES HERETO AND
AGREE TO BE BOUND BY ALL THE TERMS AND CONDITIONS HEREOF AND THEREOF.
IN WITNESS WHEREOF
, the Parties have entered into this License Agreement as of
the Effective Date.
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THE HENRY M. JACKSON FOUNDATION FOR THE
ADVANCEMENT OF MILITARY MEDICINE, INC.
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/s/ John W. Lowe
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John W. Lowe
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President
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7/11/2011
Date
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RXI PHARMACEUTICALS CORPORATION
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/s/ Mark J. Ahn, Ph.D.
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Mark J. Ahn, Ph.D.
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President and CEO
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7/11/2011
Date
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APTHERA, INC.
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/s/ Mark J. Ahn, Ph.D.
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Mark J. Ahn, Ph.D.
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President and CEO
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7/11/2011
Date
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APPENDIX A
The following
patent applications are
included in the Patent Rights:
Patent 1
Title: Vaccine for the Prevention of Breast Cancer Relapse
Inventors: Peoples and Ponniah
as described in U.S. Provisional Application No. 60/941,524 filed on 06/01/2007; and
as described in International Patent Application No. PCT/US2008/060044 filed on
04/11/2008, claiming priority to U.S. Provisional Application No. 60/941,524, and all
corresponding National Stage Applications including but not limited to Australian Patent
Application No. 2008260399 filed on 11/06/2009, Canadian Patent Application No. 2,687,368
filed on 11/16/2009, Mexican Patent Application No. MX/a/2009/012858 filed on 11/27/2009,
Japanese Patent Application No. 2010-510385 and U.S. Patent Application No. 12/602,214
filed on 11/30/2009, Chinese Patent Application No. 200880018401.2 filed on 12/01/2009,
European Patent Application No. 08745615.8 filed on 12/18/2009, and Korean Patent
Application No. 10-2009-7027587 filed on 12/31/2009.
Patent 2
Title: Targeted Identification of Immunogenic Peptides
Inventors: Peoples, Ponniah, Flora and Storrer
as described in U.S. Provisional Application No. 60/714,865 filed on 09/08/2005; and
as described in International Patent Application No. PCT/US2006/035171 filed on
09/08/2006, claiming priority to U.S. Provisional Application No. 60/714,865, and all
corresponding National Stage Applications including but not limited to Canadian Patent
Application No. 2,622,036 and U.S. Patent Application No. 12/045,402 filed on 03/10/2008,
Australian Patent Application No. 2008201427 filed on 03/28/2008, and European Patent
Application No. 06824918.4 and Japanese Patent Application No. 2008-530244 filed on
03/31/2008; and
as described in International Patent Application No. PCT/GB2008/050227 filed on
03/28/2008, claiming priority to Canadian Patent Application No. 2,622,036 and U.S. Patent
Application No. 12/045,402, and all corresponding National Stage Applications including but
not limited to European Patent Application No. 08719072.4 filed on 10/08/2010.
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